SURVEY: Small Business Optimism Rebounds, Earnings Trends Decline

The NFIB Uncertainty Index increased to 82 in May 

NFIB press release, NASHVILLE (June 9, 2020) – The Small Business Optimism Index increased 3.5 points in May to 94.4, a strong improvement from April’s 90.9 reading. Eight of the 10 Index components improved in May and two declined. The NFIB Uncertainty Index increased seven points to 82. Reports of expected business conditions in the next six months increased 5 points to a net 34%, following a 24-point increase in April. Owners are optimistic about future business conditions and expect the recession to be short-lived.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” said NFIB’s Chief Economist Bill Dunkelberg. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

NFIB State Director Jim Brown said, “One issue creating uncertainty for small businesses in Tennessee is the threat of frivolous lawsuits by some who will try to exploit the situation created by the coronavirus. NFIB is strongly encouraging the General Assembly to pass Senate Bill 2381/House Bill 2623, which is being heard this week in committees, before adjournment later this month. To help our economy rebound, small businesses need safe harbor by discouraging unwarranted COVID-19 lawsuits and adopting clear standards for all concerned in this unprecedented time.”

Real sales expectations in the next three months increased 18 points to a net negative 24%. Expectations about future sales are beginning to rebound after April’s lowest reading in survey history of a net negative 42%.

Fifty-two percent reported capital outlays in the last six months. Of those making expenditures, 35% reported spending on new equipment (down one point), 20% acquired vehicles (down one point), and 15% improved or expanded facilities (up two points). Five percent acquired new buildings or land for expansion and 10% spent money for new fixtures and furniture.

Twenty percent of owners are planning capital outlays in the next few months. Any extensive damage from recent protests will produce significant expenditures that were unexpected for some small business owners. A net negative 19% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down eight points from April. Retail sales have declined significantly in the past three months. Consumer income was up significantly due to government programs assistance, but consumers, for the most part, could not get out to spend it unless they spent it online. The change in spending behavior produced a record-high savings rate of 33%. As the economy opens, this money will be spent.

Other key findings from the survey include:

• Earnings trends declined six points to a net negative 26%. Among owners reporting weaker profits, 46% blamed weak sales, 12% blamed usual seasonal changes, 9% cited price changes, 4% cited labor costs, and 4% cited material costs. 
• Five percent of owners reported thinking it’s a good time to expand, up two points from April. 
• The net negative percent of owners expecting higher real sales volumes improved 18 points to a net negative 24% of owners. 
• A net 14% (seasonally adjusted) reported raising compensation (down 2 points) and a net 10% plan to do so in the coming months (up 3 points).

As reported in last week’s monthly jobs report, the small business labor market weakened further in the February-April period, with May survey respondents reporting reducing employment by 0.17 workers per firm in the prior three months. Most of the workers that were displaced (about 80%) expect to be rehired according to the Bureau of Labor Statistics. However, generous unemployment benefits are making it harder for some firms to re-call workers and fill open positions.

A seasonally-adjusted net eight percent plan to create new jobs in May. The creation is driven in part by the forgiveness portion requirements of the Paycheck Protection Program and owners planning to re-hire workers as the economy is reopened.

Click here to view the NFIB Small Business Economic Trends Survey.

Rod's Comment:  This is good news and I am pleasantly surprised. I have not been feeling at all optimistic.  I was fearful that the Coronavirus lockdown would tank the economy and it might take a decade to recover. On a bad day, I thought we were entering the new dark ages.  I feared businesses would go under, not to resurrect. I am still not sure we are out of the woods.  A second wave of Coronavirus could cause economic doom. This report of small business optimism, the recent unemployment numbers and the uptick in the stock market are good indicators that this is not the economic apocalypse, however.  I am going to try to be less gloomy.

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