- The NFIB’s small business optimism index declined 1.7 points to 103.3 in June, coming in just slightly ahead of consensus expectations for a 103.1 reading. The decline breaks four consecutive months of rising optimism.
- Movements among the survey’s subcomponents were mixed, with six declining, three improving, and one remaining unchanged. Capital spending plans decreased (-4 points to 26%) as well as actual capital outlays, which was down 10 points to 54%, erasing last month’s gain. Firms reporting higher sales, higher earnings and reporting ‘now is a good time to invest’ all declined by 6 points.
- Firms reporting inventories as ‘too low’ rose 4 points to a net of 0%, suggesting an overall balance of inventories. Additionally, those firms expecting credit conditions to ease increased by 2 points.
- Labor market indicators headed south in June with all indicators registering a decline relative to the previous month. The percent of firms with unfilled job openings and those planning to increase employment both fell by 2 points. Those who raised compensation over the past three months fell 6 points to 28%, while those planning to raise compensation fell by 3 points to 21%. Firms struggling to find qualified applicants also declined 4 points to 50%.
Key Implications
- Small business confidence hit a snag in June as rising uncertainty clouds the business horizon. The uncertainty index rose notably by 7 points to the highest level since March 2017. Firms reduced capital spending as profits declined and curbed expectations for higher sales volume and expansion. Labor market indicators, though still at historically high levels, also came off recent highs in June.
- The resurfacing of trade conflicts between the U.S. and its major trading partners, which are yet to be resolved, is having an impact on small businesses optimism via increased uncertainty. Firms also continue to note that a major constraint to business activity is an economy near full employment, which makes it difficult to find workers. This constraint is likely to persist for some time as the U.S. unemployment rate holds at historically low levels.
