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NFIB: Small business optimism rebounds, other trends offer mixed results

By WILL WHATLEY, Alabama Daily News

MONTGOMERY, Ala. – According to a recent survey of small businesses, there seems to be some momentum building as the country tries to rebound from the economic recession caused by the coronavirus pandemic.

Conducted in May by the National Federation of Independent Businesses (NFIB) Research Center, the Small Business Economic Trends Survey gauges several different factors to give a current snapshot of where small businesses stand. Such factors include optimism and uncertainty, sales, capital outlays, earnings and labor market.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” said NFIB’s Chief Economist Bill Dunkelberg. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

The Small Business Optimism Index increased 3.5 points in May to 94.4, up from April’s 90.9 reading. Eight of the 10 Index components improved in May while two declined. The NFIB Uncertainty Index increased seven in May to 82, up from April’s level of 75. Reports of expected business conditions in the next six months increased five points to a net 34%, following a 24-point increase in April. Owners are optimistic about future business conditions and expect the recession to be short-lived.

“Small business optimism was good before the shutdown, and it should continue to improve as the restrictions are lifted and things get back to normal,” said NFIB Alabama State Director Rosemary Elebash.

Some optimism, albeit limited, is shown in expectations of sales. Sales expectations in the next three months increased 18 points to a net negative 24%. Future sales expectations are beginning to rebound after April’s lowest reading in survey history of a net negative 42%. A net negative 19% of all owners (seasonally adjusted) reported an increase in nominal sales over the past three months, a decrease of eight points from April. Retail sales have declined significantly in the past three months due to lockdowns due to the pandemic despite consumer income being up significantly. The change in spending behavior produced a record-high savings rate of 33%. As the economy reopens, this money will be spent. The net negative percent of owners expecting higher real sales volumes improved 18 points to a net negative 24% of owners.

Spending on business investments showed mixed results. Fifty-two percent of respondents reported capital outlays in the last six months. Of those making expenditures, spending on new equipment and vehicles dipped one point at 35% and 20%, respectively. Fifteen percent of respondents improved or expanded their facilities, up two points from the previous month, and 5% acquired new buildings or land for expansion. Ten percent of those surveyed spent money on new fixtures and furniture. Twenty percent of owners are planning capital outlays in the next few months and 5% of owners reported thinking it’s a good time to expand, up two points from the previous month.

Survey results on earnings trended downward from April, which declined six points with a net negative 26%. Among owners reporting weaker profits, 46% blamed weak sales, 12% blamed usual seasonal changes, 9% cited price changes, 4% cited labor costs, and 4% cited material costs.

According to small businesses, the labor market eroded in the February-April period with May survey respondents reporting reducing employment by 0.17 workers per firm in the prior three months. About 80% of the workers who were displaced are expected to be rehired according to the Bureau of Labor Statistics. However, generous unemployment benefits are impeding some firms to recall workers and fill openings. A seasonally-adjusted net eight percent of firms plan to create new jobs in May, which is driven in part by the forgiveness portion requirements of the Paycheck Protection Program passed by Congress.

Owners said they plan to rehire workers as the economy reopens.

The NFIB Research Foundation 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 NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in May 2020.

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