Slow Recovery Expected by Small Businesses

Small U.S. businesses became slightly less optimistic in June out of concern future sales will be soft, a survey released this week showed.

Reuters reports that the National Federation of Independent Business' (NFIB) monthly index of small business optimism slipped one point to a reading of 87.9 last month. It had gained 7.9 points since March, indicating a view the economy was stabilizing.

"The economy is bouncing along the bottom and reorganizing itself to restart the growth process," said William Dunkelberg, chief economist for the NFIB.

"Many indicators—including NFIB's—are headed up. They are still in 'negative' territory, but will soon break the surface and become positive," he said.

Of the 758 small businesses surveyed, 55 percent reported falling profits, down three points from May, while 14 percent reported rising profits, up three points from May. Seasonally adjusted, this led to a one-point improvement in the net percentage of companies reporting positive profit trends, to -42 percent, near record-low levels and a clear sign that most small companies are seeing falling profits.

Plans for inventory investment and capital spending among the respondents slacked off as incoming data suggested the U.S. economy was likely to face a sluggish recovery. The idea that recovery will be a long row to hoe, and not a quick snapback, appears to be settling in.

The survey found small businesses cut jobs at a rate of 1.07 workers per firm last month. However, this was an improvement from the record low experienced in May. Small-business owners are also cutting employee compensation.

But the survey offered little reason to fear a pickup in U.S. inflation. Thirty-one percent of the respondents reported lowering prices, while only 13 percent raised them.

"The data indicate that the recession is ending, but the economy is still on the 'dark side,'" Dunkelberg added.

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