Confidence among small companies falls by most in two years

Confidence among U.S. small companies dropped in June to its lowest point since October, driven by concern that sales and the economy will deteriorate.

The National Federation of Independent Business’ optimism index fell to 91.4 from 94.4 in May, the biggest monthly decline in two years. Eight of its 10 components contributed to the slump, the Washington-based group said.

“The immediate future doesn’t look good,” William Dunkelberg, the group’s chief economist, said in an interview. “Nobody really expects business conditions and consumer spending to get any better.”

Fewer company owners last month said they would hire, invest in new equipment or expand their businesses than in May. The decline in sentiment may mean employment will be slow to recover this quarter following its weakest gain in two years.

The outlook for business conditions fell to a net minus 10%, the worst reading since November, from a net minus 2% in May.

A net minus 22% of businesses reported positive earnings trends, a decline of 7 points from May. The net percent of owners expecting higher sales dropped 5 points, to a net minus 3%, the fourth consecutive decline.

Fewer small employers plan to hire, mirroring the sluggish growth in total U.S. payrolls. A net three percent of small companies plan to increase staff over the next three months, down 3 points from May and the largest drop in a year, the report showed.

The share of companies reporting hard-to-fill job openings lost five points, falling to 15% of those polled. A net 13% reported having to boost worker compensation in the second quarter, down 3 points, and the number of businesses planning to increase pay in the coming months fell two points to a net 7%.

A net 5% of small business owners thought it was a good time to expand, down 2 points from the previous month and the lowest reading since August. Twenty-one percent planned capital spending, a decrease of 3 points and the lowest reading since October.

The survey was sent to NFIB members before the recent Supreme Court decision June 28 to uphold a 2010 health care law that will require most employers to provide insurance to workers or face penalties. The NFIB had petitioned the court to overturn the law and now is lobbying Congress to repeal it, saying it will drive up the cost of doing business.

The NFIB report was based on responses from 740 small- business owners through June 29. Small companies represent more than 99% of all U.S. employers, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise with no more than 500 employees.