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US small business optimism falls off multi-year highs: NFIB

H.S. Borji
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US small business optimism falls off multi-year highs: NFIB

US small business sentiment declined in June following three consecutive months of gains, as planned spending and expectations for better business conditions faded.

The optimism index declined 1.6 points in June to 95.0, the National Federation of Independent Business reported today. That followed a reading of 96.6 in May that was the highest since September 2007.

Economists forecast no change in business sentiment in June.

Small businesses are the backbone of the US economy, making the NFIB releases a good benchmark for assessing the short-term trends of the small business sector. More than 99 percent of all US businesses employ fewer than 500 workers, and businesses with less than 20 workers make up nearly 90 percent of all employer establishments.

The June report was based on a random sample survey of 672 small businesses taken from the NFIB’s membership.

Small businesses reported increased hiring in June, but said capital outlays and planned spending faded. Fewer small businesses said they expect the economy to improve, as expected real sales volumes posted a decline.

In total, six of the NFIB’s ten indicators declined in June, while only two index components posted gains.

“The only two index components that increased in June were labor market indicators: the percent of owners with job openings and the percent planning to create new jobs in the coming months,” said NFIB chief economist Bill Dunkelberg in a press release.

“While reports of actual net job creation per firm were positive, consumer and business owner optimism remain low, with both spending growth and sales expectations weak. This means there are more jobs but not much more output.”

The US economy added 288,000 jobs in June, as the unemployment rate dropped from 6.3 percent to 6.1 percent, the Labor Department reported last week. However, labour force participation remained unchanged at 62.8 percent, the lowest level since the 1978.

According to Dunkelberg, the unemployment rate will continue to fall this year as more people exit the labour force.

The US economy has added more than 200,000 jobs per month in each of the last five months, the first stretch of its kind since 1999-2000.

Earnings trends, while deteriorating slightly in June, remained elevated, the NFIB said. However, rising labour costs continued to pressure earnings growth, as only 13 percent of small businesses said they plan to raise compensation over the short-term.

Average hourly earnings increased 0.2 percent in June, official data showed last week. Compared to June 2013, average earnings were up 2 percent.

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