Small Business Owners See Better Economy Ahead
Owners anticipate improving sales as states re-open

Washington, D.C. (July 14, 2020) – The latest Small Business Optimism Index, a survey of small businesses conducted by NFIB since 1973, shows small business owners’ expectations about future sales have rebounded after the lowest reading in survey history in April 2020. The survey respondents also expect better business conditions over the next six months and are optimistic about the future of the economy, indicating they expect the recession to be short-lived.

“Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly,” said NFIB Chief Economist Bill Dunkelberg. “We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

“As NJ small business owners finally see an uptick in business revenues, they are blindsided by the Legislature’s approval of Governor Murphy’s 10 billion dollar borrowing plan,” said NFIB’s New Jersey State Director, Eileen Kean. “The business closures were the first threat, and now, tax hikes under discussion are a second threat, making small business owners question their future sustainability.”

Key findings from the survey include:

• The Small Business Optimism Index increased 6.2 points in June to 100.6 with eight of the 10 components improving.
• The NFIB Uncertainty Index decreased one point in June to 81.
• Earnings trends over the past 3 months declined to a net negative 35%, the lowest reading since March 2010.
• The percent of owners who think now is a good time to expand improved 8 points to 13% of owners.
• Job creation plans increased 8 points to a net 16%.

Nearly half of small business owners surveyed reported capital outlays down in the next 6 months, the lowest level since December 2010. Twenty-two percent plan capital outlays in the next few months, up 2 points from May. Plans are trending up but remain at recession levels.

A net negative 31% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 12 points from May. Re-opening the economy has been slow, especially in the services sector including travel, entertainment, salons, and other more public-facing businesses.

The net percent of owners expecting higher real sales volumes improved 37 points to a net 13% of owners. The historic 61-point drop over March and April has been followed by a 55-point increase over the past 2 months as owners are expecting higher sales with business re-openings.

Also improving from May, the net percent of owners reporting inventory increases went up 1 point to a net negative 14%. Inventory levels are surprisingly low. Owners had little time to manage their inventory position after the pandemic and had a drop in customers unexpectedly and quickly. Once states began to re-open, some owners had trouble getting some of the items for their customers.

The net percent of owners planning to expand inventory holdings increased from May by 5 points to a net 7% as sales improved. This is one of the highest readings historically and good news for growth.

Seasonally adjusted, the net percent of owners raising average selling prices rose 9 points to a net negative 5%. Unadjusted, 18% reported lower average selling prices and 15% reported higher average prices. Price hikes were the most frequent in retail (12% higher, 23% lower, and wholesale (18% higher, 28% lower). A net 12% (seasonally adjusted) plan price hikes, up 3 points from May.

A net 14% (seasonally adjusted) reported raising compensation, well below the 36% reading in February prior to the pandemic. A net 13% plan to do so in the coming months, up 3 points from May. Eight percent of owners cited labor costs as their top business problem.

Nineteen percent of owners selected “finding qualified labor” as their top business problem. The coronavirus disruption for millions of workers did not change the skills of the existing workforce. Consequently, there was no improvement in firms’ ability to find the skills required to fill their open positions.

The frequency of reports of positive profit trends fell 9 points to a net negative 35% reporting quarter on quarter profit improvements, the lowest reading since March 2010. Among the owners reporting weaker profits, 61% blamed weak sales, 9% blamed usual seasonal change, 5% cited price changes, 3% cited labor costs, and 1% cited martial costs. For the owners reporting higher profits, 65% credited sales volumes and 19% credited usual seasonal change.

Unchanged from May, 3% of owners reported that all their borrowing needs were not satisfied. Thirty-four percent reported all their credit needs were met and 54% said they were not interested in a loan. A net 3% reported their last loan was harder to get than in previous attempts. Overall, access to capital is not a serious problem, likely due to the popularity of the Paycheck Protection Program that most small business employers have accessed.

One percent reported that financing was their top business problem. The net percent of owners reporting paying a higher rate on their most recent loan was negative 9%, up 4 points. The Federal Reserve policies have driven interest rates to historically low levels.

Click here to view the NFIB Small Business Economic Trends Survey.

About the Small Business Economic Trends
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in April 2020. For more information about NFIB, please visit NFIB.com.

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For more than 75 years, NFIB has been advocating on behalf of America’s small and independent business owners, both in Washington, D.C., and in all 50 state capitals. NFIB is nonprofit, nonpartisan, and member-driven. Since our founding in 1943, NFIB has been exclusively dedicated to small and independent businesses, and remains so today. For more information, please visit nfib.com.