Small business sector optimism ticks up in May despite uncertainty

Small business owners surveyed in May reported a slight uptick in overall optimism with an index reading at 94.4, an improvement from April’s reading of 90.9, according to the National Federation of Independent Businesses.

The trade group found eight of the 10 index components improved last month, while two declined. The NFIB Uncertainty Index rose seven points to 82, as sentiment toward business conditions in the next six months improved slightly from the 24-point rise in April. The metrics indicate business owners are optimistic about future business conditions and expect the recession to be short-lived.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” said Bill Dunkelberg, chief economist for the NFIB. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

Sylvester Smith, Arkansas director of NFIB, said the past few months haven’t been easy for small businesses, but they remain determined to get through this crisis.

The survey found real sales expectations in the next three months increased 18 points to a net negative 24%. This was a marked improvement from the net negative low 42% from the April survey. With many businesses temporarily shuttered during the past two months earnings trends continue to decline with a net negative 26% in May. Among owners reporting weaker profits, 46% blamed weak sales, 12% blamed usual seasonal changes, 9% cited price changes, 4% cited labor costs, and 4% cited material costs.

Federal stimulus failed to reach much of the small business sector until recently. The survey found 33% reported all credit needs were met. Overall, access to capital has been not a serious problem likely due to the popularity of the Paycheck Protection Program (PPP) that most small employers have accessed, the report states.

Mary Beth Brooks, director for the Arkansas Small Business and Technology Development Center at the University of Arkansas in Fayetteville, said the center has been busy responding to questions from small business owners and operators.

“We were slammed with requests from small business owners around March 20 or so,” Brooks said. “The University of Arkansas has worked together with Nelson Peacock and the Northwest Arkansas Council to add staff and expertise to be able to meet the massive demand.”

Brooks said with additional funding from the Council she was able to add nine to 10 business professionals which included human resources specialists, retired business owners and retail executives which provide a wide array of business acumen to the services provided. She said early on there was coordinating webinars for specialty groups like dentists or other health professionals who run small offices and were forced to close. Restaurant and small retail operators were also hit hard early on and their struggle continues.

“Around the last part of March, our office basically performed triage for all the folks calling for help and guidance. Over the past 10 weeks we have continued to support our members in trying to find funding sources, and understand the changing rules regarding loan forgiveness,” Brooks said.

She said they have held “How To” webinars for 1,000 small business operators to more easily navigate the filing rules for funding.

“But it’s been a challenge because the rules keep changing,” she said.

Brooks said businesses who accessed PPP loans early and paid their employees instead of furloughing them have about exhausted their funds. But with restaurants still having only 33% capacity, there is no way some of them can make it given the added costs of operations.

“I had one restaurant client tell me he had 20 guests eating and 17 employees working which is not sustainable given the higher costs and lower revenue,” Brooks said.

She said businesses who took PPP loans or other stimulus help and did not exhaust the funds now have that to help them operate at lower capacity levels. For those few who have not taken the help, Brooks said there is money available and the terms are very favorable.

“These are the businesses in the best position now but they gambled big the money would still be there,” Brooks added.

Brooks said the UA recently compiled local survey research to help restaurant operators try and understand the mindset of consumers and their willingness to return to eating out. She said the survey results of 1,000 people were “a gut punch” to some restaurant operators. But they needed to know what to expect. For instance, the data show consumers were not interested in going to coffee houses for extended times and there was no indication of when that might change.

Also, the survey found 70% of consumers are willing to wear masks and which social media channels reach certain demographics which was beneficial information for the restaurant operators. She said the research also included in-depth interviews with 200 respondents to better understand the mindset of the various demographics.