Small Business Optimism Improves

Slow improvement sums up the trend in both small business optimism and their follow-up actions. The National Federation of Independent Business (NFIB) recently released the results of its June 2003 member survey. While optimism among members improved markedly from previous months (reaching its highest level since November 2002), most of the gain was in attitudes and expectations for economic conditions. NFIB chief economist William Dunkelberg noted that hard spending plans were responsible for none of the gains in the index of optimism. Small business owners view tax cuts and the Fed's interest rate cuts positively, but Dunkelberg says , "Apparently owners think everyone else will be motivated by the most recent policy changes, but don't plan to increase their own spending until actual real sales justify the outlay." The survey yielded no evidence of plans to significantly boost hiring, capital spending or inventory investment.

On a more positive note, Dunkelberg observes that "the net percent of owners expecting improvement in the economy has reached record levels and is exhibiting a pattern that has reliably preceded every expansion period since 1973. Every economic episode has its unique characteristics, but this indicator appears to be quite reliable. If so, the economy is about to pick up its growth pace, an event that will be welcomed by all. The tax cuts, the Fed action, and the stock market are all fueling optimism, but this has yet to be translated into increased spending and hiring."