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Economy in Brief

U.S. Small Business Optimism Declines in July
by Tom Moeller  August 10, 2021

• NFIB optimism index reverses June increase.

• Worries about economy increase.

• Price & wage strength eases.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index fell 2.8 points in July to 99.7 and backed away from its highest reading since last October. Six of the index's 10 components declined.

The net balance of respondents expecting the economy to improve over the next six months fell to -20% in July from -12% in June. The figure compared to a high of 39 in June of last year. A net -4% of firms expected higher real sales, the weakest reading since February, off from 7% in June. A net 27% intend to increase employment, off slightly from its record high of 28 in June. A slightly lessened net 38% of respondents reported increasing compensation but a record net 27% plan to raise compensation in the next three months. Overall earnings trends, however, deteriorated sharply.

Firms are still having difficulty finding qualified employees. An increased 57% of respondents reported that qualified workers to fill job openings were hard to find. The figure equaled the series record. Plans to make capital outlays improved slightly.

Inflation pressures eased slightly in July. The percentage of firms raising selling prices eased one point to 46% after rising seven points in June. The percentage planning to raise selling prices held steady at 44%, its highest reading since October 1979.

Important issues for small businesses were the quality of labor, unchanged at 26% for the third straight month and higher than the pandemic low of 15% in April 2020. Inflation concerns eased slightly to 11% from 13%, its highest reading since September 2008.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

National Federation of Independent Business (SA, Net % of Firms) Jul Jun May Jul '20 2020 2019 2018
Small Business Optimism Index (1986=100) 99.7 102.5 99.6 98.8 99.6 103.0 106.7
Firms Expecting Economy to Improve -20 -12 -26 25 20 13 32
Firms Expecting Higher Real Sales -4 7 3 5 1 18 26
Firms Reporting Now Is a Good Time to Expand the Business 13 15 13 11 13 25 30
Firms Planning to Increase Employment 27 28 27 18 16 19 21
Firms With Few or No Qualified Applicants for Job Openings (%) 57 56 57 44 46 52 51
Earnings Trends -13 -5 -11 -32 -16 -5 -2
Firms Reporting that Credit Was Harder to Get 2 2 2 2 3 4 4
Firms Raising Average Selling Prices 46 47 40 -2 5 13 15
Firms Raising Worker Compensation 38 39 34 15 23 31 33
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