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Weak Sales Deflate Business Owners’ Optimism: Survey

Tuesday, 10 Jul 2012 | 7:30 AM ET

Small business owners’ pessimism about the U.S. economy seems to be rising with temperature. For the second month in a row, the Small Business Optimism Index declined, according to a monthly survey by the National Federation of Independent Business.

“Optimism fell off last year at the same time, but not like this,” said William Dunkelberg, chief economist for the NFIB. The index was down three points in June, after a one-tenth of a point decline in May.

Hiring among small business owners remains weak, according to the survey. While construction and manufacturing saw increases, overall, the index saw a three-point decrease in the survey from May. Nine percent of the owners adding an average of 2.6 workers per firm over the past few months, and 12 percent reduced employment an average of 2.8. The remaining 79 percent of owners made no change in employment.

Capital spending, too, was down, with a three-point decrease from May, as 52 percent of respondents said they has purchased equipment, vehicles, or facilities over the past six months. In 2007, that number was 60 percent.

However, said Dunkelberg, the most salient indication that optimism will not increase anytime soon is the sales number — down 7 points in the past three months. “That drives everything,” he said. “Profits, the need to hire, funds for making capital expenditures. Without sales, you have none of that.”

Weak sales were cited by 23 percent of respondents as their biggest business problem; 28 percent reported lower sales over the past three months, while 26 percent said they had higher sales.

How Optimistic Are Small Business Owners?
William Dunkelberg, National Federation of Independent Business chief economist, breaks down the data on the Small Business Optimism Index and what it indicates about the outlook on the U.S. economy.

The survey, which was sent to members in early June, measured, for the most part, the sentiments of 740 small business owners before the Supreme Court’s ruling on the health-care mandate, which many small business owners had said would create an extra burden if they had to provide health insurance for all employees. The NFIB was a plaintiff in the case that went before the Supreme Court in March, arguing that the individual mandate was unconstitutional. The court ruled in late June that the mandate was constitutional, calling it a tax.

“The predominant view among business owners is that Obamacare is not good, and they were hoping for a decision that would take it apart, at least the mandate part,” said Dunkelberg, who said that the court’s decision had little effect on this month’s survey, but predicted it will further depress the optimism index in the months ahead.

Is there anything that could push business owners to reverse course between now and November? Dunkelberg said that a stagnant Congress and the economic situation in Europe don't give Main Street a lot of reason to hope things will change anytime soon.

“Washington keeps doing nothing. There are two strong sides, and each keeps the other from doing anything. Washington is paralyzed, and Europe is falling apart,” he said.

While real estate could continue its upward trend in some markets, and profitability might take hold in some sectors, the overall economy is going to continue seeing fits and starts, he said.

“We’re going to be pessimistic until November, when we see what the voters say and what path we’re going to be on," he predicted. "Then, we may still be pessimistic, but at least know what direction we’ll be going.”

Email us at SmallBiz@cnbc.com and follow us on Twitter @SmallBizCNBC.

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