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Small business optimism: Two steps back and one step forward

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July optimism higher, but still below long-term average.

The National Federation of Independent Businesses, an advocacy organization for small businesses, announced Tuesday that its Small Business Optimism Index rose in July by 1.3 points, or 1.3%, to 95.4.  This increase gained back some of the 4 points lost in June, but remains well below the 42-year average of the Index of 98.

Bill Dunkelberg, NFIB Chief Economist, commenting on the report, said “July has produced the most grudging of gains in the Index’s history and is still not above the 42 year average of 98.0, 99.5 through 2007. This leaves current readings just over two points below the average and five points below the December 2014 reading.”

“The best thing that can be said about the July index is that there was no further decline from June.”

Expectations for business conditions and sales gains accounted for half of the net gain in optimism, according to the report.

While optimism improved overall, individual components of the report reflected a very mixed picure. Employment remained flat in July, and plans for inventory build were based more on concern about future sales rather than real growth.  Capital spending, while still sub-par in an expansion, remained somewhat positive, while earnings trends continue to deteriorate.

Dunkelberg expressed concern about the overall trend. 

“GDP growth for the first quarter was finally revised to 0.6% after an excursion into negative territory. Second quarter growth is initially estimated at 2.3%, but with revisions to come. Domestically, the economy feels so flat – because it was, and still is. Exports have been strong in the recession, explaining a lot of things such as the performance of the large firms with profits at a record high share of GDP. The stock market is at record high levels, yet the output of USA, Inc. is less than impressive. Exports and foreign operations contributed to record high profits for the Large Firm division of USA, Inc. which has been hoarding cash and repurchasing shares, not investing in the real economy.

“The best thing that can be said about the July index is that there was no further decline from June.”

For the full report, click here.

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