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Small Business Optimism Improves Despite Earnings Hit

  • In quarterly survey from the National Federation of Independent Business, optimism improves among construction, manufacturing, retail, service sectors
  • Small businesses continue to report challenges, including lower earnings and poorer credit conditions
  • Businesses still working to recover from COVID-19, and some are coming back faster than others

Small businesses were more optimistic about economic conditions during the summer, according to a quarterly report from the National Federation of Independent Business. However, business owners also reported ongoing challenges and some industries were recovering more quickly than others.

The Small Business Economic Trends Quarterly Industry Report for the second quarter of the year focused on July conditions in construction, manufacturing, retail, and services. In each sector, the “Optimism Index” increased from April’s first quarter report, with a net positive share of respondents saying they think the economy will improve and that they will need to hire more employees and invest in capital outlays.

At the same time, respondents were more likely than not in each industry to say they had experienced weaker earnings trends over the past quarter. Businesses also reported dissatisfaction with current inventory and credit conditions.

The construction industry had a better than average economic outlook due to favorable conditions in the housing market, namely a shortage of homes for sale and low mortgage rates fueling a push for more home construction and a robust demand for workers. Manufacturers were hard-hit by supply chain disruptions caused by the pandemic, but generally expect a strong recovery.

Retailers were most likely to report ongoing challenges due to diminished consumer spending and foot traffic as well as inventory shortages. Service firms have also lagged in their recovery since most were deemed non-essential businesses and subject to longer closures, but were more optimistic that they will soon see an uptick in hiring and sales.

NFIB says the results of the quarterly survey are in line with an August survey on the impact of COVID-19 on small businesses. One in five respondents to that poll said they expect they will have to close in the next six months if economic conditions don’t improve, while 44 percent said they would apply or re-apply for a Paycheck Protection Program loan if a second round of relief was approved.

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