Dipping for a second consecutive month, after ending several months of slow growth, the Small Business Optimism Index gave up 0.2 points, falling to 91.2. The decline, while less anticipated given the Supreme Court decision on the health-care law and a flurry of activity surrounding the fiscal cliff, still leaves owner optimism disturbingly low and at recession levels. The Index has oscillated between 86.5 (July 2009) and 94.5 (February 2012) since the recession officially ended in June 2009. Prior to 2008, the Index averaged 100, well above the current reading. During the economic recovery, now three-years-old, the Index has averaged 90, making this the worst recovery period from a recession in the NFIB survey history (which began in 1973).

"Congress has recessed without a plan to resolve our calamitous debt/spending cycle or a lasting answer to our dangerous fiscal cliff," said NFIB chief economist William Dunkelberg. "Meanwhile, the White House has presented us with some 'fuzzy math,' asserting that only three percent of small businesses will be impacted by planned tax increases. That's not true. The denominator in that calculation is wrong—it should be the 6 million employer firms that provide jobs to half the private sector workforce, meaning that more like 15 percent of small businesses can expect higher taxes in January. The lack of meaningful actions to address tax reform in Washington adds to the certainty of sluggish growth for the remainder of 2012, and the uncertainty of what will come in 2013."

According to July’s report, more owners indicated that they expect business conditions will be worse (and not improved) in six months, and more owners expect real sales volumes to be lower than those who expect them to be higher in three months. This in part explains the lack of any need to hire more workers or to buy new inventory. Job creation plans are historically very low; only five percent of owners think the current period is a good time to expand.

Capital Expenditures

The frequency of reported capital outlays over the past six months gained 2 points to 54 percent, still failing to get out of the rut they have been stuck in since early 2008. In 2007, an average of 60 percent reported making capital outlays. So, it appears that spending remains in “maintenance” mode. Of those making expenditures, 38 percent reported spending on new equipment (up 1 point), 19 percent acquired vehicles (up 1 point), and 14 percent improved or expanded facilities (up 3 points). Six percent acquired new buildings or land for expansion (up 1 point) and 10 percent spent money for new fixtures and furniture (down 3 points).

Overall, the stats are consistent with the sluggish performance of the economy. The percent of owners planning capital outlays in the next 3 to 6 months was unchanged at 21 percent, a dispiriting result. Only five percent characterized the current period as a good time to expand facilities (seasonally adjusted) in contrast to 10 percent last December and 28 percent in December 2004, just to illustrate how weak the current reading is. The net percent of owners expecting better business conditions in six months was a negative eight percent, a 2 point improvement. Twenty percent reported “poor sales” as their top business problem, down 3 points. Overall, the outlook is not conducive to a lot of new capital spending or hiring.

Today’s report is based on the responses of 1,803 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of July. Download the complete study at http://www.nfib.com/sbetindex.