- The NFIB’s small business optimism index increased by 6.2 points to 100.6 in June. The reading came above the consensus forecast, which called for a 97.0 print.
- Under the surface, the improvement was broad-based with eight of the ten subcomponents advancing on the month. The increases were led by real sale expectations, which rose by 37 points to 13% after three consecutive months in negative territory.
- Other sub-indices that rose on the month included the percent of firms reporting now is a good time to expand (+8 to 13%), along with those with plans to increase inventories (+5 to 7%) and capital expenditures in the next 3 to 6 months (+2 to 22%).
- Expectedly, the percent of firms reporting higher earnings last quarter fell by 9 points to -35%. Also bucking the trend was the percent of firms expecting credit conditions to ease, which declined by 2 points to -6%.
- Forward-looking labor market indicators also showed signs of improvement. The share of firms planning to increase employment increased by 8 points to 16%, while the proportion of firms planning to raise worker compensation in the next 3 months improved by 3 points to 13%. By contrast, the share of firms that increased worker compensation over the last 3 months remained unchanged at 14%, and the average change in employment-per-firm decelerated for the fifth month in a row, speaking to the difficult conditions small businesses are operating under.
Key Implications
- Small business confidence has now improved for two straight months, reflecting the rebound in economic activity that ensued as states eased restrictions and stay-at-home orders were lifted across the country.
- Programs such as the Small Business Administration’s Paycheck Protection Program (PPP) played a key role in helping small businesses stay afloat during these trying times. In fact, the NFIB’s June 16th Covid-19 Small Business Survey found that over 80% of small businesses had applied for a PPP loan, and 97% of those that applied had received their loans. More support will likely be needed to sustain the recovery, and recent communication from Treasury Mnuchin indicating that he would support an extension of the PPP, although under narrower eligibility criteria, are encouraging.
- Indeed, the nascent recovery is already being threatened by a surge in new coronavirus cases. This has caused several states to either pause or roll back their reopening plans in recent weeks. An example of this is California, which announced this week the suspension of all indoor activities at restaurants, zoos and movie theaters, in addition to shutting bars back down. There is little doubt that the economic outlook is largely going to depend on how successfully the pandemic is contained in the months ahead.
