WASHINGTON (MNI) – The following is the text of the National
Federal of Independent Business’ monthly Small Business Optimism index,
published Tuesday:

Small Business Optimism Declines in June

WASHINGTON, July 13, 2010 – The National Federation of Independent
Business Index of Small Business Optimism lost 3.2 points in June
falling to 89.0 after posting modest gains for several months*. The
Index has been below 93 every month since January 2008 (30 months), and
below 90 for 23 of those months, all readings typical of a weak or
recession-mired economy. Seventy percent of the decline this month
resulted from deterioration in the outlook for business conditions and
expected real sales gains. Owners have no confidence that economic
policies will fix the economy.

“The U.S. economy faces hurricane force headwinds and the
government is at the center of the storm, making an economic recovery
very difficult,” said William Dunkelberg, NFIB’s chief economist.

Optimism Components Net % Change
PLAN TO INCREASE EMPLOYMENT 1 0
PLAN TO INCREASE CAP. OUTLAYS* 19 -1
PLAN TO INCREASE INVENTORIES -3 -5
EXPECT ECONOMY TO IMPROVE -6 -14
EXPECT HIGHER REAL SALES -5 -10
CURRENT INVENTORY SATISFACTION -1 -1
CURRENT JOB OPENINGS* 9 0
EXPECTED CREDIT CONDITIONS -13 -1
NOW A GOOD TIME TO EXPAND* 6 1
EARNINGS TRENDS -32 -4

*Note: These components are measured as actual percentages of all
respondents and are not net percentages. A net percentage is the
percent positive minus percent negative.

Employment

Average employment growth per firm turned negative in April of 2007
and has remained negative for 10 of the 12 following quarterly readings
ending with a negative .18 in April (seasonally adjusted). May and
June show no reversal in the bad news, posting average declines of
negative .48 and negative .28 workers per firm respectively.

In June, 9 percent (seasonally adjusted) reported unfilled job
openings, unchanged from May and historically very weak. Over the next
three months, 8 percent plan to reduce employment (up one point), and 10
percent plan to create new jobs (down four points), yielding a
seasonally adjusted net 1 percent of owners planning to create new jobs,
unchanged from the May reading and positive for the second time in 20
months.

Capital Spending and Outlook

The frequency of reported capital outlays over the past six months
was unchanged at 46 percent of all firms, two points above the 35-year
record low (reached most recently in December 2009). Of those making
capital expenditures, 30 percent reported spending on new equipment
(down two points), 15 percent acquired vehicles (down two points), and
11 percent improved or expanded facilities (unchanged). Four percent
acquired new buildings or land for expansion (down one point), and 9
percent spent money for new fixtures and furniture (down one point).

The percent of owners planning to make capital expenditures over
the next few months fell one point to 19 percent, 3 points above the 35
year record low. Six percent characterized the current period as a good
time to expand facilities, up 1 point. But a net negative 6 percent
expect business conditions to improve over the next six months, down 14
points from May.

“Owners do not trust the economic policies in place or proposed,
and they are distressed by global and national developments that make
the future more uncertain,” said Dunkelberg.

Sales and Inventories

The net percent of all owners (seasonally adjusted) reporting
higher nominal sales in the past three months lost four points, falling
to a net-negative 15 percent, 19 points better than June 2009, but still
far more firms are reporting negative sales trends quarter-to-quarter
than positive. The net percent of owners expecting real sales gains
lost 10 points, falling to a net-negative 5 percent of all owners
(seasonally adjusted).

“Hiring and capital spending depend on expectations for growth in
future sales, so the outlook for improved spending and hiring is not
good,” said Dunkelberg.

Small business owners continued to liquidate inventories and weak
sales trends gave little reason to order new stock. A net-negative 21
percent of all owners reported gains in inventories (more firms cut
stocks than added to them, seasonally adjusted), one point worse than
May. Plans to add to inventories declined five points to net-negative 3
percent of all firms (seasonally adjusted).

Inflation

The weak economy continued to put downward pressure on prices.
Thirteen percent of owners (down one point) reported raising average
selling prices, and 27 percent reported average price reductions (down
one point). Seasonally adjusted, the net percent of owners raising
prices was a negative 13 percent, a two point increase in the net
percent raising prices. June is the 19th consecutive month in which
more owners reported cutting average selling prices rather than raising
them. Plans to raise prices fell three points to a seasonally adjusted
net 11 percent of owners.

Earnings

A net-negative 32 percent of small business owners reported
positive profit trends, three points worse than in June and 28 points
worse than the best expansion reading reached in 2005. The persistence
of this imbalance is bad news for the small business community. Profits
are important for the support of capital spending and expansion.

Owners continued to hold the line on compensation, with 8 percent
reporting reduced worker compensation, and 13 percent reporting gains.
Seasonally adjusted, a net 4 percent reported raising worker
compensation, only six points better than February’s record low reading
of net-negative 2 percent.

“In past recovery periods, compensation improved at a much faster
pace than we have experienced in this recovery period,” said Dunkelberg.

Credit

Regular NFIB borrowers (29 percent accessing capital markets at
least once a quarter, a survey record low) continued to report
difficulties in arranging credit. A net 13 percent reported loans
harder to get than in their last attempt, unchanged from May. Overall,
90 percent of the owners reported all their credit needs met (or they
did not want to borrow).

“The small business sector is not on a positive trajectory and with
this half of the private sector missing-in-action, the economy’s poor
growth performance is no surprise,” said Dunkelberg. “Small business
owners are not happy about the future of the economy being painted by
the administration or economic events. Confidence is lacking and the
news out of Washington is discouraging. Until this changes, don’t expect
small businesses to start hiring.”

*The survey was conducted through June 30 and represents 805 small
business owner respondents.

** Market News International Washington Bureau: 202-371-2121 **

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