US NFIB Survey: June Optimism Index -1.7 to 103.3 - Text

     WASHINGTON (MNI) - The following are excerpts from the National Federation

of Independent Business' monthly Small Business Optimism index published

Tuesday:

     America's small business owners' optimism took a modest downturn in June,

according to the NFIB Small Business Optimism Index, slipping 1.7 points to

103.3. While optimism remains at historically high levels, the June figure

reverses the gain posted in May, with six components falling, three improving,

and one unchanged. The Uncertainty Index rose substantially, increasing seven

points to the highest level since March 2017.

     "Last month, small business owners curbed spending, sales expectations and

profits both fell, and the outlook for expansion dampened. When you add

difficulty finding qualified workers and harmful state level laws and

regulations, you're left with a volatile mix where uncertainty has increased to

levels not seen in more than two years," said NFIB President and CEO Juanita D.

Duggan.

     Both capital spending plans and reports of actual spending fell in June,

reversing last month's gains. The inventory component strengthened in June with

owners saying existing inventory stocks were lean and planning to add to them.

Sales and earnings trends softened, while expected credit conditions remained

favorable. More owners expect credit conditions to tighten rather than ease by a

two-to-one margin, with most expecting no change.

     "As expectations for sales gains and the general business environment

faded, uncertainty levels increased," said NFIB Chief Economist William

Dunkelberg. "Still, job openings and plans to create jobs remain historically

very strong, and while it's not as 'hot' as May, Main Street is still running

strong."

     Twenty-six percent of owners plan capital outlays in the next few months,

down four points, and an indication there is more reluctance to make major

spending commitments when the future becomes less certain. Fifty-four percent

reported capital outlays, down 10 points. Of those making expenditures, 40

percent reported spending on new equipment (down four points), 22 percent

acquired vehicles (down seven points), and 12 percent improved or expanded

facilities (down seven points).

     The net percent of owners reporting inventory increases fell two points to

a net zero percent, indicating no further building in inventory stocks in June.

The net percent of owners viewing current inventory stocks as "too low" rose

four points to a net zero percent, overall balance. Major imbalances reported in

May have been resolved in most industries with the exception of manufacturing

(18 percent too large, five percent too low) and agriculture (eight percent too

large, 14 percent too low). The net percent of owners planning to expand

inventory holdings did increase one point to a net three percent, a solid

number.

     A net seven percent of all owners (seasonally adjusted) reported higher

nominal sales in the past three months, down two percentage points but a very

solid reading. The net percent of owners expecting higher real sales volumes

fell six points to a net 17 percent of owners. Excluding the government shutdown

earlier this year, this is the weakest reading since September 2017.

     "Contextually, owners expecting higher real sales volumes averaged a net

negative three percent in the 12 months leading up to November 2016, making the

current reading look relatively good, but not as good as the 31 percent reading

in May of last year," said Dunkelberg. "The economy is still advancing at a

solid pace, but it is expected to be a slower pace than the first quarter."

     The frequency of reports of positive profit trends slipped six points to a

net negative seven percent reporting quarter on quarter profit improvements.

Twenty-seven percent of those reporting weaker profits blamed sales (down three

points), 12 percent blamed labor costs (up five points), 11 percent cited

materials costs, and nine percent cited lower selling prices (down two points).

     Three percent of owners reported that all their borrowing needs were not

satisfied, unchanged and historically very low. Twenty-nine percent reported all

credit needs met (down five points) and 55 percent said they were not interested

in a loan, up one point. A record low two percent reported their last loan was

harder to get than the previous one. Two percent reported that financing was

their top business problem (unchanged) compared to 21 percent citing the

availability of qualified labor, 18 percent citing taxes, 13 percent regulations

and red tape.

     As reported in the June NFIB Jobs Report, small business owners added a net

addition of 0.21 workers per firm, with 21 percent citing the difficulty of

finding qualified workers as their Single Most Important Business Problem.

Fifty-eight percent of owners reported hiring or trying to hire employees, down

four points from last month, but 50 percent reported few or no qualified

applicants for the positions they were trying to fill.

     Optimism Components:        Seas Adj Level %     Change

     PLANS TO INCREASE EMPLOYMENT      18                -3

     PLANS TO MAKE CAPITAL OUTLAYS     26                -4

     PLANS TO INCREASE INVENTORIES      3                 1

     EXPECT ECONOMY TO IMPROVE         16                 0

     EXPECT RETAIL SALES HIGHER        17                -6

     CURRENT INVENTORY                  0                 4

     CURRENT JOB OPENINGS              36                -2

     EXPECTED CREDIT CONDITIONS        -3                 2

     NOW A GOOD TIME TO EXPAND         34                -6

     EARNINGS TRENDS                   -7                -6

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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