U.S. small business sentiment falls in June, NFIB index drops to 107.2

U.S. small business sentiment falls in June. NFIB’s small business optimism index dropped 0.6 points to 107.2, after rising by 3 points in the month prior. The headline print came in slightly above market expectations, which called for a pullback to 106.9. Half of the main subcomponents dropped on the month, with the forward-looking indicators leading the way.

Expectations of higher real sales and the belief that now is a good time to expand fell 5 points apiece to 26 percent and 29 percent respectively, while expectations for an improvement in the economy drop 4 points to 33 percent. Earnings trend also fell 4 points to -1 percent. It is significant to note that all these indicators came off of very solid readings in the month prior, and none dropped below May levels.

A net 10 percent of owners recorded higher nominal sales – down 5 points from May, but still one of the best showings since the early 2000s. On a trend basis, earnings and sales trends have been pretty positive over the past few months, which has led to a drawdown in inventories. In fact, the share of owners that view current inventories as too low rose 4 points to 0 percent – the highest since 2014.

Labor market indicators came in mixed. Job openings rose 3 points to 36 percent. Plans to increase employment also rose 2 points to 20 percent, slightly below the 24 percent record seen late last year, and accomplished while the share of businesses reporting few or no qualified workers rose sharply by 7 points to 55 percent.

Meanwhile, the share of companies raising worker compensation dropped after rising to a new record level in the earlier month, falling 4 points to 31 percent. Plans to raise compensation in the future rebounded by 1 point to 21 percent, which is within the top range of historical prints. The share of companies implementing price rises, and those planning to do so in the future, also alleviated off on the month.

Some drop in the sentiment measure was already anticipated in June, given that it rose sharply to the second-highest level on record in the earlier month. Yet, in spite of the slight fall, the main story continues to be largely unchanged, with optimism among small businesses still bouncing around at the top range of historical highs.

“The lack of qualified labor however – the biggest pain point among small business owners and one which likely played a role in the dimming of forward-looking indicators this month – remains a key impediment to expansion plans”, stated TD Economics in a research report.

Close monitoring would be needed in the coming months, given that several small businesses would also be caught in the crossfire should protectionist action escalate further.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -86.3597. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex