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Small Businesses Feeling Less Confident

Slowing Sales, Trade Tensions and Rising Costs Cited

Small Businesses Feeling Less Confident

While small business optimism was off only a little in June and remains at a relatively strong level, the latest numbers are "consistent with a broader slowing in economic growth during the second half of the year," according to the Wells Fargo Economics Group.

The latest monthly survey conducted by the NFIB, called the Small Business Optimism Index, slipped 1.7 points. However, with an overall score of 103.3, confidence is still pretty high.

The proportion of small businesses raising prices over the past three months increased seven points, but that number in the previous reports was the lowest since December 2017. Thirty percent of owners said that U.S. trade policy with China was negatively impacting their business. Fifty-four percent of them, a drop of 10 points and the lowest reading for over four years, reported a capital expenditure over the past six months.

Hiring plans also decreased as the proportion of owners who reported they added staff over the past three months dipped four points to 5%, which is the smallest number since late last year, and those that said they will hire in the next three months slipped one point to 20%. The cost of labor has increased three percentage points over the past year, but the inability to find skilled workers is still the great current challenge for the survey's respondents.

In the analysis of the report by the Wells Fargo Economics Group, it was noted that since small businesses lack the bargaining power of large corporations, a common strategy that was implemented "was placing orders ahead of higher tariffs, which resulted in higher inventories late last year. Inventories have run down more recently. Margins are now likely being squeezed and this may be why so many small businesses are expressing caution about capital spending and hiring plans."

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December 5, 2019, 7:52 am PDT

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