What’s Bugging Business Owners

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Finding qualified workers. An uncertain political climate. Increased regulations. Small business owners don’t have much enthusiasm for making capital outlays, increasing inventories or expanding with these worries on their minds. According to the National Federation of Independent Business’s Small Business Economic Trends’ most recent report, small business optimism rose two-tenths of a point in May and, at 93.8, remains well below the 42-year average of 98.

“The bottom line is that without an empowered small business sector, the economy will grow at a mediocre pace,” says NFIB Chief Economist Bill Dunkelberg. “Politicians in Washington credit any insignificant growth in the economy to their policies, but realistically, it’s the increase in the population. At this point, we should expect the same slow growth for the rest of the year.”

Small business owners are reporting that they can’t find qualified workers and that increased regulations make it harder to run a business these days. Mix in worries about the presidential election — the second most frequently cited reason for why owners think the current period is a bad time to expand — and business owners are happy to sit tight.

Overall, it appears that labor markets are tightening, and 13 percent of owners cited the difficulty of finding qualified workers as their single most important business problem. Hiring activity actually increased substantially, but the “failure rate” also rose as more owners found it hard to identify applicants. Fourteen percent cited weak sales as their top business problem, which is consistent with the poor performance of consumer spending in the first quarter.

An increase was recorded in “Expected Business Conditions,” which rose five points, a good sign but still nine percentage points below last year’s reading.

Dunkelberg says second quarter GDP growth is looking better, and preliminary forecasts from the New York and Atlanta Federal Reserve banks range from 2.9 to 2.2 percent growth. This would signal a “return to the ‘normal’ sluggish growth” and explain why potential new investment is not profitable for businesses to undertake.

Optimism has improved among consumers and the percentage expecting their finances to improve reached its highest point in 10 years, but this has yet to translate into improved consumer spending and trickle down to small businesses.

 

Read the full report at www.nfib.com/surveys/small-business-economic-trends/.

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