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NFIB July Small Business Optimism Index 88.2 Vs 89.2 In June

NEW YORK (Dow Jones)--The latest survey of small businesses showed optimism slipped in July, establishing one of the longest strings of recession level readings in the survey's history.

The National Federation of Independent Business said Tuesday that its Small Business Optimism Index for July fell 1 point from the previous month's reading, to 88.2.

Half of the index's decline was due to weaker capital spending plans, which posted the lowest reading since 1975. Lower earnings, fewer job openings and lower inventory satisfaction also posted notable declines. Those were offset, though, by gains in expected real sales, business conditions and the percentage of owners reporting the current period as a good time to expand.

The current report again showed inflation to be a top concern, with the percent of owners citing inflation as their No. 1 problem remaining at 20%, the highest reading since January 1982 and higher than any other single concern.

The NFIB poll showed the net percent of owners reporting higher average selling prices rose to a net 32% in July, up from just 9% last September. Plans to raise prices rose to a net seasonally adjusted 38% of all owners.

"Even with energy prices falling, inflation gained momentum on Main Street," the report said. "The inflation problem is getting worse, not better."

The poll showed that plans to make capital expenditures over the next few months fell five points to 21%. Six percent characterized the current period as a good time to expand facilities, up two points from June, but historically low. Last September, 14% felt that it was a good time to expand operations at that time.

A net negative 17% expect business conditions to improve over the next six months, a two point improvement from June, but 19 points below last September's reading.

"All in all, not a very positive environment for capital spending," the report said. "With gloom and doom dominating the media and profits and sales weakening, who's going to buy new equipment or expand...?"

"Getting a discount on loans or the purchase price of equipment is not sufficient to stimulate much spending if the equipment isn't needed to serve customers," the report said.

Regarding employment, seasonally adjusted, there was a decline in average employment per firm of 0.25 workers reported by small business owners in July, consistent with the payroll survey report. Ten percent of business owners increased employment by an average of 3.3 workers per firm, but 15% reduced employment at average of three workers per firm. Over the next three months, 10% plan workforce reductions, which is up two points from June.

More firms also cut stocks than added to them in July, with a net negative 14% of owners reporting gains in inventory stocks, three points worse than June.

"The widespread inventory reductions have not produced increased satisfaction with current stocks because sales have also weakened," the report said, "reducing the need for more inventory in the near future."

More firms are also reporting deteriorating sales trends than sales gains, quarter over quarter.

Comparing the current string of low index readings though to past periods of weak readings suggests that the fundamentals, as indicated by the jobless rate and inflation rate, are not as bad currently as they were in prior recessions, according to the report.

The report said, however, it does appear that in the past the low index readings anticipated worse conditions a year after the last low index reading. This suggests "that the current string of readings may be anticipating higher unemployment in the coming quarters" and possibly a recession.

The NFIB poll was based on the responses of 1,827 association members.

-By Deborah Lynn Blumberg, Dow Jones Newswires; 201-938-2018; deborah.blumberg@dowjones.com

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(END) Dow Jones Newswires

August 12, 2008 07:30 ET (11:30 GMT)


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