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Small Business Optimism Still In The Doldrums

Written by Tim Morral
Published: 8/27/2013

NFIB Small Business Optimism Index hits fourth highest level since December 2007; remains far below pre-recession optimism levels.

Small business owners and entrepreneurs tend to be an optimistic group. When everyone around them says it can't be done, entrepreneurs often think outside the box and find ways to achieve seemingly impossible tasks.

Small Business Not Optimistic

But according to the National Federation of Independent Business (NFIB), small business owners aren't nearly as optimistic as they used to be. Although the July NFIB Small Business Optimism Index showed marginal improvement (up 0.6 points to 94.1), optimism among the nation's small business owners continues to lag behind historical indexes as well as the index just before the recession in December 2007.

"In an attempt to 'make lemonade' from the lousy bushel of lemons the administration has handed the small-business community, owners gave the July optimism Index the great distinction of being the fourth highest reading since December 2007--when the economy slipped into official recession," said NFIB chief economist Bill Dunkelberg. "But let's not get too excited: The level is still well below the average reading of 100 in the prior 35 years and still half a point below the December 2007 reading."

Some of the symptoms of lingering pessimism in the small business community include:

  • Capital Expenditure. Reported capital outlays over the past six months fell 2 points in June to 54 percent, which is a full 7 points below the average spending rate through 2007. Approximately 23 percent of owners are planning additional capital outlays in the next three to six months.
  • Inventory Reduction. Managing inventory is a major concern for small businesses. Owners continue to reduce inventories, with a net negative 10 percent indicating growth in inventories -- a 3 percent drop from June's index. The number of businesses planning to increase inventory levels remains at a net negative 1 percent of all firms.
  • Growth and Expansion. Although 9 percent of owners said the current period is a good time to expand facilities (an increase of 2 points from June), the number of owners who expect to see better business conditions over the next six months declined 2 points to a net negative 6 percent.

"Unfortunately, nothing is being done to allay the most pressing concerns identified by job creators--dealing with rising health insurance costs, regulations, tax complexity, energy costs and general economic uncertainty," added Dunkelberg. "The President wants a deal on 'corporate taxes', but most small businesses are not incorporated. Energy policy is more confused than ever and the volume of new regulations is mounting. Should I even mention the mounting problems with Obamacare? We are in the 'tankeroo,' not sinking, but trying to stay afloat."

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