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America's small businesses are saying one thing and doing another

Myles Udland
·Markets Reporter

American small businesses have big plans for the future.

But right now, they are acting more cautiously than at any point since the election.

On Tuesday, the latest small business optimism index from the National Federation of Independent Business showed bullishness from small businesses fell to its lowest level since the election in June. This was also the fifth-straight month the headline index — which now stands at 103.6 — either declined or was unchanged from the prior month.

The details of the NFIB’s report were particularly interesting.

Notably, the report showed that fewer companies reported increased actual employment, attempts to hire new workers, and plans to hire new workers. “Small business owners reported an adjusted average employment change per firm of negative 0.04 workers per firm over the past few months, basically zero,” the NFIB said.

This report also comes after last week’s private payrolls data from ADP showed that just 17,000 payrolls were added in June to small businesses (classified as those with between 1 and 49 employees). Overall, 158,000 private jobs were added in June, according to ADP; the government’s number released Friday indicated 222,000 jobs were added during the month.

Small business optimism is still really high, but off its best post-election levels. (Source: NFIB)
Small business optimism is still really high, but off its best post-election levels. (Source: NFIB)

But in the NFIB’s report on Tuesday we also learned that plans for capital expenditures are at their highest since September 2007, meaning that while small business right now may be acting cautiously they are harboring big plans for the future.

It comes down to what is and isn’t happening in D.C.

Steve Ricchiuto, chief U.S. economist at Mizuho, wrote in a note on Tuesday that the jump in capex plans, “still seems to be a holdover from optimism that Trump can get things done.”

“Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform remain stuck in the bowels of Washington politics,” the NFIB said Tuesday.

“Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.”

Overall, then, it seems that American small businesses are saying one thing but doing another: we’re optimistic, but acting with caution.

And at least according the NFIB, it all comes down to what is and what is not happening in Washington, D.C.

“A continuation of the high levels of optimism in the small business sector will depend heavily on Congressional progress on the major issues for small business owners: healthcare, tax reform and regulatory relief,” the NFIB writes.

“More substantial progress is needed on these major issues if owner optimism is to be sustained and produce accelerated hiring and spending.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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