The small business optimism index fell 0.9 points in June to 103.6, posting the lowest level of the year in a continuation of the mild decline from the 12-year high set in January. The June setback, which put the index within the range but near the bottom of analysts' expectations, reflected disappointment over the gridlock in the Senate on the healthcare reform bill, according to the NFIB. Four the index's ten components posted a gain, five declined, and one remained unchanged.
Leading the decliners but remaining the most upbeat of the small business optimism components were expectations that the economy will improve, which fell 6 points 33. Expectations of higher real sales also declined significantly, falling 5 points to 17, and now is a good time to expand dropped by 2 points to 21. Notably, the two employment components also posted declines, with current job openings down 4 points to 30 and plans to increase employment down 3 points to 15.
Components showing an increase in optimism in June and indicating that small business owners intended to take concrete expansionary steps included plans to increase capital outlays, up 2 points to 30, and plans to increase inventories, up 3 points to 4. Current inventories were also up 3 though remaining negative at minus 3, and expected credit conditions rose 1 point to minus 3.
The least optimistic component, earnings trends, continued to languish unchanged in negative territory at minus 10.
The NFIB reiterated that the surge in small business optimism after the election was based on expectations of tax reform and healthcare. In the absence of progress on these two fronts, the optimism of small business owners will most likely continue to erode and eventually may drive down the economy.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
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