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First Cut: June NFIB Small Business Optimism Index a little less buoyant

The NFIB Small Business Optimism Index declined 1.7 points to 103.3 in June. The lack of a firm trade agreement with China brought the index lower again from 1.5 point increase in May to 105.0 when expectations were higher that tariff and trade issues with China would be resolved. However, the June reading is still a solid one and the first half of 2019 seems to have settled into a comfortable level of activity and expansion, if below the record peaks seen in 2018.

The index had 3 components higher, 6 lower, and 1 unchanged. On net, it was the forward-looking components that lost momentum, although the present looked less rosy as well.

The change in the index reflected a drop in expectations of real higher sales (down 6 points to 17%), more-or-less back to where it was earlier this year when the government shutdown and overall slower expectations for growth — domestic and global — prevailed. The brief uptick in April and May was probably due to activity trying to get ahead of fresh tariffs and increased costs, and disruptions along the supply chain.

Also bringing the index lower in June was a decline in the earnings trend (down 6 points to -7%), plans for capital expenditures (down 4 points to 26%) but still about on trend, and now is a good time to expand (down 4 points to 26%) that is more consistent with modest expansion after the more heated pace that dominated much of 2018.

Offsetting some of this was an increase in satisfaction with inventories in June (up 4 points to 0 [zero]). This was the highest since 0 in June 2018 and suggests that goods are not moving out as quickly once produced, and that businesses are likely to act quickly to ensure no accumulation builds.

There was little change in the components associated with the job market in June. Hiring plans remained on track (down 1 point to 20%). Job openings moved a bit lower but were still quite strong (down 2 points to 36%). The subcomponent for actual compensation hinted that businesses are seeing less need to offer higher wages and benefits (down 6 points to 28%, lowest since 27% in December 2017).


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