June Small-Business Optimism Index Falls

Small-business owners pulled back slightly on their optimism in June, after hitting a cycle high in May, according to a report released Tuesday. More small firms, however, are going ahead with price increases.

The National Federation of Independent Business's small-business optimism index fell to 95.0 last month from 96.6 in May, which was the highest since September, 2007, before the last recession.

Economists surveyed by The Wall Street Journal expected the latest index to increase to 97.0.

The two positive subindexes in June were job-related. The job-creation subindex increased two percentage points to 12% and the subindex covering hard-to-fill jobs increased 2 points to 26%.

"NFIB owners increased employment by an average of 0.05 workers per firm in June (seasonally adjusted), the ninth positive month in a row and the best string of gains since 2006," according to the report.

Other subindexes within the optimism index were flat or declined.

The biggest drop was a 10-point plunge, to -10%, in better business conditions expectations. In addition, real sales expectations dropped 4 points to 11%. The earnings trend subindex slipped 1 point to -18%.

The NFIB survey also showed a trend that is sure to be noticed at the Federal Reserve.

"Price hikes are more widespread," the report said.

Seasonally adjusted, the net percentage of owners that have raised their selling prices increased to 14% from 12% in May. In addition, a net 21% plan price hikes in the next few months.

One reason for the pricing plans is rising labor costs. A net 21% of small firms have increased compensation in June, a percentage point higher than in May. A net 13% plan to raise compensation in coming months, a high reading for this recovery.

"The reported gains in compensation are now solidly in the range typical of an economy with solid growth," the report said.

The increased shares of small companies that are facing higher labor costs and are lifting prices should eventually show up in the government measures of prices.

"Inflation is on the way, it just isn't strong enough to get market attention yet," the NFIB said.