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July Small Business Optimism Ticks Higher

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for July rose 1.3 points, from 94.1 in June to 95.4. The July reading is more than two points below the July average and five points below last December’s reading.

The four “hard” measures of the index posted mixed results last month. The job creation component rose three points to 12%, the job openings component rose a point to 25%, capital spending plans rose one point to 24% and inventory investment plans rose four points to a level of zero.

Some 15% of small business owners plan to raise employees’ pay in the next several months. That is up four points compared with June on a seasonally adjusted basis, but it is the lowest reading since October 2013. The report notes:

Official reports of hourly wages suggest a chunk [of] these gains are being absorbed by mandated “benefits,” as little is getting through to take home pay.

In its commentary on the report, the NFIB noted:

With small business accounting for half of the private GDP, prospects for a strong second half of growth seem modest at best. The Large Firm division will be coasting, not growing or investing, and the Small Business division is not in the mood for rapid expansion and hiring. But even so, the economy grows driven by population growth and investment to cover depreciation and technological obsolescence, but not a lot more.

The NFIB reports that 25% of business owners currently have positions open that they are unable to fill (up one point from June) and that 48% said there were few or no qualified applicants for the open positions.

Business owners said their single most important problem is taxes (22%), government regulations and red tape (21%) or quality of labor (13%). The least important problems are financing and interest rates (3%) and inflation (2%).

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By Paul Ausick