Small business owner confidence continued to stabilize in June, according to new data from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index jumped to 100.6 last month, much better than analysts anticipated and enough to erase the bulk of the pandemic-related decline. Eight of the ten main components that make up the sentiment gauge strengthened in June, including a surge in the number of owners who expect inflation-adjusted sales to increase in the months ahead. Small business employment conditions were another bright spot last month as both total job openings and reported hiring plans improved markedly. Complaints about a lack of qualified applicants also rose in June but so too did reported plans to boost worker compensation, both of which were likely influenced by the emergency $600 unemployment insurance boost.
The removal of the lockdowns has been the biggest driver of this initial rebound in activity. For example, 27 percent of surveyed owners said that they are experiencing a “significant or moderate” increase in sales due to the eased restrictions, and roughly 4 in 10 owners reported that their current sales volume is back to at least 75 percent of pre-crisis levels, a significant improvement from 28 percent in the May survey. Moreover, only 10 percent of firms now cite sales volume at 1-25 percent of pre-crisis levels, down from 16 percent just one month earlier. Another encouraging sign is that although many small businesses were forced to shutter their operations permanently as a result of the economic shock from the coronavirus and related containment efforts, the American entrepreneurial spirit appears alive and well. Indeed, new business formation has already more than fully recovered from the COVID disruptions, as evidenced by the accelerating rise in Employer Identification Number (EIN) applications, particularly among businesses with a high-propensity to have a payroll (create jobs). The “second wave” of the coronavirus could of course take some of the momentum away from this recovery via reinstated business restrictions and a general uptick in uncertainty, but for now the outlook remains bright.
Sources: Econoday, NFIB, U.S. Census Bureau, J.P. Morgan, FRBSL