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Tuesday, August 11, 2015 - 06:00

US NFIB Chief Economist:Data Doesn't Support Second-Half Surge

By Timothy Weatherhead

WASHINGTON (MNI) - The National Federation of Independent Business reported a meager 1.3-point gain to 95.4 in its July Small Business Optimism Index following a 4-point loss in June.

"My first reaction was relief that the index didn't go down," NFIB Chief Economist William Dunkelberg told MNI in an exclusive interview. "My second thought was that there's really nothing there that's going to support a second-half surge (in the macro economy)."

Seven of the 10 indices posted gains, though the overall index sits 2.6 points below its 42-year average.

Owners added a net 0.05 workers, which beat June's negative 0.01 reading, but remains very close to zero. One of every four respondents said they had job openings they couldn't fill and 48% cited lack of qualified applicants as a hindrance to hiring.

"There's clearly a tight labor market out there," Dunkelberg said. "The tightest group is construction, with 21% saying that (a lack of qualified applicants) is their top business challenge ... along with taxes.

Dunkelberg added, "The second is manufacturing with 19%, while the rest of the industries came in around 6% to 7%."

Capital spending made the largest positive impact, with 61% of small business owners reporting capital outlays, a three-point gain over June. In addition, the number of owners planning capital outlays in the next three to six months rose by 1% to 24% overall.

The continuing presence of low oil prices has not had the anticipated positive impact on profits via increased consumer demand and reduced input costs.

"Taking a look at consumer spending, they are saving these gains and so they're not pouring these earnings back into the economy," Dunkelberg said. "The main reason is that consumers don't believe it's permanent."

On the supply side, increasing labor costs, which rose by two points to 23% of all owners, prevented businesses from seeing gains from reduced oil prices.

"Small businesses benefit from lower fuel prices, but at the same time they're being crushed by regulatory costs with health care, so they are protecting their bottom lines with the lower fuel prices, but that doesn't mean they're going to expand their business," Dunkelberg said.

On top of a 10-point drop in June, July earnings fell by two more points to a paltry minus 19%.

--MNI Washington Bureau; +1-202-371-2121; email:


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