small business

Small-business index in U.S. declined in July to 10-month low

Posted 8/9/11

WASHINGTON - Confidence among U.S. small businesses dropped in July for the fifth consecutive month as the outlook for sales and the economy dimmed.

The National Federation of Independent Business’s optimism index declined to 89.9, the lowest level since September, from 90.8 in June, the Washington-based group said Tuesday.

Unemployment above 9 percent and cooling consumer spending may be causing small-business owners to lose hope that demand will improve in the second half of the year, making them hesitant to invest and hire. At the same time, the months-long political debate over cutting the budget deficit and raising the debt-ceiling could be shaking owners’ views of the economy.

“Uncertainty is the enemy, and there is plenty of it to convince owners to be cautious,” William Dunkelberg, the group’s chief economist, said in a statement. “Now that Congress has reached an agreement on the debt limit, the July and August surveys will prove a good ‘before and after’ test of the impact of the agreement on owner optimism and confidence.”

President Barack Obama signed a bill last week raising the U.S. debt ceiling by at least $2.1 trillion and reducing federal spending by $2.4 trillion or more, after party leaders spent months wrangling over the measure. S&P, one of the major credit rating agencies, downgraded the U.S. on Aug. 5 from its top credit rating for the first time, citing “uncertainty” in the policymaking process.

Six of the index’s 10 components fell, today’s report showed. Fewer small-business owners said they expected the economy will improve six months from now, bringing the gauge down 3 points to a net minus 15 percent, the weakest reading in a year.

Sales Outlook

A measure of whether business owners expected sales to improve decreased 2 points to a net minus 2 percent. Twenty-three percent of respondents said that poor sales are their top business problem, hindering investments in equipment or workers.

The measure of those creating new jobs fell 1 point to a net 2 percent. The gauge of owners who said job openings were hard to fill dropped 3 points to a net 12 percent.

The survey’s results indicate that small businesses may not help accelerate payroll gains. Employers in the U.S. added 117,000 workers last month, and the unemployment rate declined to 9.1 percent, the Labor Department reported last week.

The lack of jobs may have slowed consumer spending in June, as purchases declined for the first time in almost two years, Commerce Department figures show.

Less Spending

The measure of spending on new equipment by small businesses decreased 1 point to a net 20 percent, while the measure of companies planning to increase inventories was little changed at minus 3 percent. An index of earnings trends held at a net minus 24 percent.

The NFIB survey’s net figures are calculated by subtracting the percent of company leaders giving a negative answer from those with a positive response and adjusting the results for seasonal variations.

The NFIB report was based on 1,817 owners surveyed through July 28. Small businesses represent more than 99 percent of all employers and have created 65 percent of new jobs in the past 17 years, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise employing up to 500 people.

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