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Small Business Optimism Falls: How We Can Turn It Around

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The National Federation of Independent Business (NFIB) Index of Small Business Optimism fell three points to 91.4 in June, which was below the May level of 94.4 and the consensus expectation of 93.3. These declines were broad-based, as all but one of the components declined from their May levels. Labor market signals are declining further with small business plans to hire in the next three months falling to 3 percent (previously: 6 percent). There was continued evidence of skills mismatch, as 33 percent of firms reported few or no qualified applicants (previous: 37 percent) and 15 percent reported positions that they were not able to fill right now (previous: 20 percent). More broadly, this report suggests that while layoffs have stabilized hiring has yet to catch up.

There was a significant deterioration in the economic outlook as well, with the net percentage of respondents who expected the economy to improve in the coming months falling to -10 percent (previous: -2 percent). This component alone accounted for 25 percent of the decline in the headline index and was in line with the weak employment report and ISM in June.

Earnings trends were also substantially lower, with the net percentage of those expecting higher earnings falling to -22 percent (previous: -15 percent). This fall in earnings optimism was matched by an increase in the percentage of those citing poor sales as their single most important problem, to 23 percent (previous: 20 percent). This component has now overtaken taxes (21 percent) and government regulations and red tape (19 percent) as the most-cited issue for small businesses and is only slightly improved from the 24 percent who cited it as their largest problem this time last year. Startling as these numbers may be, this survey does not include the cost of the additional taxes and regulations contained in the Affordable Care Act (Obamacare).

It seems clear to small businesses and entrepreneurs -- the kind represented by the Job Creators Alliance, that the unprecedented level of government spending and increase in regulations is having a harmful effect on economic growth. We need to look no further than last week's employment report for June to see the concerning trend of less business confidence, less hiring and more "missing workers."

Small business confidence is going to continue to trend lower, as long as partisan gamesmanship takes precedence over commonsense reforms that would empower and encourage entrepreneurs. JCA believes that reducing -- not increasing -- the regulatory and tax burden on small business owners will help jumpstart the painfully sputtering engine of the American economy.

By David Park

David Park is Chairman and Co-Founder of Job Creators Alliance (jobcreatorsalliance.org), a non-partisan, non-profit organization based in Dallas focused on developing free market solutions to America's economic and employment challenges.