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

In a disappointing reversal of several months of slow but positive
growth, June’s Index of Small Business Optimism dove three points,
falling to 91.4. The decline is significant, and relinquished the gains
achieved earlier this year. Only one of the ten Index components
improved; labor market indicators and spending plans for capital
equipment and inventories accounted for about 40 percent of the decline.
Political uncertainty remains historically high and continues to be a
primary cause for a reticence among small-business owners to expand.

“All in all, this month’s survey was a real economic downer,” said
NFIB Chief Economist William Dunkelberg. “The economy has definitely
slowed; job growth will be far short of that needed to reduce the
unemployment rate unless lots of unemployed leave the labor force-no
consolation. Taxes remain a top concern for the small-business
community. With the Supreme Court’s endorsement of the individual
mandate as a tax in its health care decision, we will have to wait for
July’s survey to realize the effect it will have on small-business
confidence. With over 20 new taxes contained in the law-a price-tag of
$800 billion-and most of the regulations yet to be written by HHS, the
implications for employee costs remain unclear. Uncertainty reigns
supreme for much of Main Street.”

June’s report also showed a reversal in earnings trends, chipping
in 21 percent of the decline, and expectations for business conditions
and real sales gains contributed 40 percent of the Index decline.

Nearly one-quarter of owners cite weak sales as their most
important business problem (23 percent), followed by taxes (21 percent)
and unreasonable regulations and red tape (19 percent).

Some other highlights of June’s Optimism Index include:

– Capital Expenditures: Overall, the stats on capital expenditures
are consistent with the sluggish performance of the economy. The
frequency of reported capital outlays over the past six months dropped 3
points to 52 percent, failing to get out of the rut carved out in
mid-2008. Of those making expenditures, 37 percent reported spending on
new equipment (unchanged), 18 percent acquired vehicles (down 6 points),
and 11 percent improved or expanded facilities (down 3 points). Five
percent acquired new buildings or land for expansion (down 2 points) and
13 percent spent money for new fixtures and furniture (unchanged). The
percent of owners planning capital outlays in the next three to six
months declined 3 points to 21 percent. Only five percent characterized
the current period as a good time to expand facilities (seasonally
adjusted), down 2 points. The net percent of owners expecting better
business conditions in 6 months was a negative 10 percent (an 8 point
decline). Not seasonally adjusted, 25 percent expect deterioration in
business conditions (a 5 point increase), and 14 percent expect
improvement (down 4 points).

– Sales: The net percent of all owners (seasonally adjusted)
reporting higher nominal sales over the past three months lost 7 points,
falling to negative five percent, this after reaching a five year high
of a net four percent in April. The low for the cycle was a net negative
34 percent (July 2009) reporting quarter over quarter gains.
Twenty-three (23) percent still cite weak sales as their top business
problem, historically high, but down from the record 33 percent reading
in December 2010. Seasonally unadjusted, 26 percent of all owners
reported higher sales (last three months compared to prior three months,
up 1 point) while 28 percent reported lower sales (up 1 point). Consumer
spending remains weak, especially on services. The net percent of owners
expecting higher real sales lost 5 points, falling to a net negative
three percent of all owners (seasonally adjusted), producing a four
month decline of 15 percentage points. Not seasonally adjusted, 29
percent expect improvement over the next three months (down 7 points)
and 25 percent expect declines (up 4 points). Expectations this weak are
not likely to generate job creation or inventory investment.

– Job Creation: Posting the first negative reading since December,
the net change in employment per firm over the past few months
(seasonally adjusted) was -0.11. Seasonally adjusted, nine percent of
the owners added an average of 2.6 workers per firm over the past few
months, and 12 percent reduced employment by an average of 2.8 workers.
The remaining 79 percent of owners made no net change in employment.
Forty-four (44) percent of the owners hired or tried to hire in the last
three months and 33 percent reported few or no qualified applicants for
positions. The percent of owners reporting hard to fill job openings
lost 5 points, falling to 15 percent of all owners. This was a strong
reversal of May’s result and suggests the unemployment rate will rise.
Not seasonally adjusted, 10 percent plan to increase employment at their
firm (down 7 points), six percent plan reductions, up 1 point.
Seasonally adjusted, the net percent of owners planning to create new
jobs fell 3 points to three percent, an unfortunate reversal of two
months of improved readings.

Optimism Components : Net % Change

PLAN TO INCREASE EMPLOYMENT 3 -3
PLAN TO INCREASE CAP. OUTLAYS 21 -3
PLAN TO INCREASE INVENTORIES 0 -2
EXPECT ECONOMY TO IMPROVE -10 -8
EXPECT HIGHER REAL SALES -3 -5
CURRENT INVENTORY SATISFACTION 0 0
CURRENT JOB OPENINGS 15 -5
EXPECTED CREDIT CONDITIONS -8 +2
NOW A GOOD TIME TO EXPAND 5 -2
EARNINGS TRENDS -22 -7

Today’s report is based on the responses of 740 randomly sampled
small businesses in NFIB’s membership, surveyed throughout the month of
June.

** MNI Washington Bureau: 202-371-2121 **

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