Small business owners are becoming less optimistic about the economy

Photo: Shutterstock

Photo: Shutterstock

Small business owners across the nation slipped off their rose-colored glasses last month. The National Federation of Independent Business (NFIB) Optimism Index fell 1.7 points to 103.3 in June, reversing May’s gains. 

The NFIB Optimism Index is intended to track small business sentiment and is released each month. The index takes 10 components into consideration, including: 

  • Plans to increase employment

  • Plans to make capital outlays

  • Plans to increase inventories

  • Expect economic improvement

  • Expect real sales higher

  • Current inventory

  • Current job openings

  • Expected credit conditions

  • Now a good time to expand

  • Earnings trends

Six of the components fell in June, and expectations of economic improvement remained static. The only components showing improvement last month were plans to increase inventories, current inventory and expected credit conditions. 

The index is still high by historical standards, but June’s fall effectively reversed May’s gains. The slip was also a departure from four consecutive months of overall gains.

“Employment and hiring trends were down in June, with 58 percent of respondents saying they were either hiring or planning to hire in the upcoming months,” FreightWaves Chief Economist Ibrahiim Bayaan said. “In addition, 50 percent of respondents said that they were struggling to find qualified applicants, also down from May’s readings.”

This is counter to trends seen in the greater economy last month. Overall job growth rebounded in June after a poor performance in May, with the service industry accounting for most of the gains.

“The Bureau of Labor Statistics (BLS) reported that the economy added 224,000 workers to payrolls in June,” Bayaan said.” This exceeded consensus estimates of a 170,000 job gain and serves as an impressive rebound from a disappointing 72,000 gain in the previous month. The 12-month moving average improved to 171,000 in June after falling below 150,000 in each of the past two months.”

The NFIB Optimism Index is down 3.7 percent year-over-year and 0.3 percent from where it was two months ago.

“Like many other things in the macroeconomy, the small business optimism index peaked with record highs in the third quarter of last year and has clearly downshifted since then,” Bayaan said. “While sentiment has yet to make any sustained downward movements, it certainly adds evidence to the idea that the economy has settled into a slower pace of growth in the middle of the year.”

Small business sentiment slipping from last year’s surging numbers could be one more sign of a normalizing economy.