Small business owner optimism cooled in July, according to new data from the National Federation of Independent Business (NFIB). Specifically, the headline confidence index slid to 98.8 last month, slightly below analysts’ forecasts but still well above the roughly 7-year low hit in April during the widespread lockdowns. Four of the ten main components that make up the sentiment gauge strengthened in July, and five deteriorated. The “second wave” of COVID-19 was likely one of the factors weighing on sentiment last month, but there has been a rapid improvement in the coronavirus situation here in the U.S. recently that if persists could translate into a reacceleration in the recovery in the months ahead. Other headwinds exist, though, such as the uncertainty surrounding how much small business aid will be included in the next pandemic relief package currently being negotiated in Congress.
Owners will likely also be paying close attention to how the emergency unemployment benefits expansion is handled given the hiring challenges many firms continue to have. Indeed, reported job creation plans increased in July but so too did the number of respondents complaining about there being “few or no” qualified applicants for the positions they were trying to fill. A larger percentage of surveyed owners stated that they already raised worker compensation in response to this environment, and more respondents also said they have plans for additional increases in the months ahead. However, upward pressure on wages is nothing new since a lack of skilled labor was the top complaint among small businesses well before the pandemic. Further, a separate report from the U.S. Labor Department released earlier this week showed that the number of Americans voluntarily leaving their jobs in June surged to 2.6 million, below the pre-pandemic level but a sharp bounce off the April low. Seeing this metric rebound quickly even as much uncertainty still surrounds COVID-19 and the broader economy is likely a reflection of the $1200 relief checks and other financial support provided by the government this crisis, especially since some of the largest increases in quits in June occurred in typically low-paying industries such as social assistance (+106,000), accommodation and food services (+104,000), and retail trade (+99,000).
Sources: Econoday, NFIB, BofAML, NYT, U.S. DoL, FRBSL