US small businesses are increasingly pessimistic over economy

10 July 2012 18:54  [Source: ICIS news]

WASHINGTON (ICIS)--US small business owners are increasingly pessimistic about the nation’s economy, a key survey said on Tuesday, with confidence levels taking a significant drop in June in what was seen as “a clear indication of slow growth”.

The National Federation of Independent Business (NFIB), which represents some 350,000 US small companies, said its monthly index of small business optimism fell in June by 3 points from May to 91.4, the lowest level since October last year.

“The decline is significant and relinquished gains achieved earlier this year,” the federation said.

The small business optimism index combines survey answers to ten questions, such as whether a company plans to hire more workers, make capital investments or increase inventories.

Only one of the ten index components showed improvement in June, with more small business owners expecting credit conditions to ease going forward.

But the percentage of small business owners who plan to hire more employees fell by three points to 3%.

NFIB called that decline to near-zero hiring prospects “an unfortunate reversal of three months of improved readings” and “definitely not typical of an expansion”.

NFIB chief economist William Dunkelberg said the June survey indicates that hiring prospects for July “look even worse, so there will be very little progress on the jobs front in coming months”.

That outlook bodes ill for the overall US employment picture, because US small businesses – defined as those with fewer than 500 employees – typically generate most of the nation’s new jobs.

“Job growth will be far short of that needed to reduce the unemployment rate, unless lots of unemployed leave the labour force,” said Dunkelberg, “which is no consolation.”

NFIB said there was a large decline in sales expectations, and that consequently small business owners planned to reduce their inventories.

The federation said business owners who think this is a good time to expand operations fell to 5% in June from the already low 7% in May.  This measure had grown to 9% in January this year but has since declined.

“The economy definitely slowed in mid-year,” Dunkelberg said, noting that political uncertainty among business owners is at an historically high level.

A wide range of US government policy issues – healthcare, energy, taxes, defense spending, among others – remain uncertain as the US nears what many consider will be a pivotal national election in early November.

The survey identified taxes, unreasonable regulations and red tape as among small business owners’ most important problems.

“All in all, this month’s survey was a real economic downer,” said Dunkelberg.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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