US small business optimism rises more than expected in June

The small business optimism index has risen by 0.7 points in June, according to The National Federation of independent business (NFIB), however a fall in employment, inventories and expansion have made this increase negligible.

According to a survey by NFIB, the small business optimism index has risen to 94.5 in June from 93.8 in May. Given the 42 year average being 98, this increase is considered marginal. The index is however higher than analysts expected it would be by 0.5 points.

“Small business optimism did not go down, which is good, but small businesses are in maintenance mode experiencing little growth,” said NFIB chief economist Bill Dunkelberg.

The index comprises of 10 components, four of which posted a gain. The biggest increase was expected business conditions which rose by 4 points. However more owners still expect conditions to get worse with the number of owners willing to expand falling by 1 point.

Plans to increase employment fell by 1 point due to difficulty in finding qualified workers. Owners cite it as their third “single most important business problem”. Plans to increase inventories fell by 2 points and expansion plans fell by 1 point suggesting a fall in growth.

“Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicate that there will be no surge from the small business sector anytime soon and prospects for economic growth are cloudy at best,” said Dunkelberg.

Despite job openings and capital spending plans rising to “expansion” high readings they are still quite low for a growth period. Low capital spending is one of the main causes for slow GDP growth. Aside from that the uncertain political climate is the second most cited reason why owners are not keen to expand.

“Calling the current economy an expansion is an absolute oxymoron,” said NFIB President and CEO Juanita Duggan. “Fifty percent of GDP is small business. To grow the economy, policy makers need to get serious about tax reform, over-regulation, and health care costs.”