by Calculated Risk on 8/09/2011 07:30:00 AM

From the National Federation of Independent Business (NFIB): Small Business Optimism Index Continues Downward Trajectory

For the fifth consecutive month, NFIB’s monthly Small-Business Optimism Index fell, dropping 0.9 points in July—a larger decline than in each of the previous three months—and bringing the Index down to a disappointing 89.9. This is below the average Index reading of 90.2 for the last two-year recovery period.
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The percent of owners citing poor sales as their top problem—the long-time primary complaint of firms—has faded a few points, and reports of sales trends are much better than a few months ago. However, the July survey anticipates slow growth for the remainder of the year, high unemployment rates, inflation rates that are too high and little progress on job creation.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in graph gallery.

The first graph shows the small business optimism index since 1986. The index decreased to 89.9 in July from 90.8 in June.

Optimism has declined for five consecutive months now.

The second graph shows the net hiring plans for the next three months.

Hiring plans were slightly positive in July.

According to NFIB: “While the national unemployment rate dipped marginally, for the nation’s small businesses, the employment story is not a positive one. Twelve percent (seasonally adjusted) reported unfilled job openings, down 3 points. Over the next three months, 10 percent plan to increase employment (down 1 point), and 11 percent plan to reduce their workforce (up 4 points), yielding a seasonally adjusted 2 percent of owners planning to create new jobs, 1 point lower than June, leaving the prospect for job creation bleak."

Weak sales is still the top business problem with 23 percent of the owners reporting that weak sales continued to be their top business problem in July.

In good times, owners usually report taxes and regulation as their biggest problems.

From NFIB: "The percent of owners citing poor sales as their top problem—the long-time primary complaint of firms—has faded a few points, and reports of sales trends are much better than a few months ago."

The index continues to struggle, probably a combination of the recent economic weakness, and also the high concentration of real estate related companies in the index.