Consumer Payment Card News

Business Owner Blues: Unqualified Workers & Uncertain Economy

Business Owner Blues

Business owner blues follows economic optimism, expressed last month, perhaps an aberration. In June, small biz owners turned pessimistic citing the continued difficulty of finding qualified workers, difficulty in planning inventories, and likelihood of interest rates rising, as significant factors. The impact of trade tariffs on consumer spending, starting this fall, has added even more angst among business owners, even though the current administration has largely gutted small business regulations and may force a politically motivated interest rate cut.

The latest small business survey from the National Federation of Small Business (NFIB), reveals small business optimism sank 1.7 points in June. Six components of the NFIB’s Small Business Optimism Index declined, three were improved, and one unchanged.

Small Business Pessimism

Both capital spending plans and reports of actual spending fell in June. The inventory component strengthened in June with owners saying existing inventory stocks were lean and planning to add to them. Sales and earnings trends softened, while expected credit conditions remained favorable.  More owners expect credit conditions to tighten rather than ease by a two-to-one margin, with most expecting no change.

NFIB President and CEO Juanita Duggan says “uncertainty has increased to levels not seen in more than two years.” NFIB Chief Economist William Dunkelberg concurs saying “as expectations for sales gains and the general business environment faded, uncertainty levels increased.”

Small business owners added a net addition of 0.21 workers per firm, with 21% citing the difficulty of finding qualified workers as their Single Most Important Business Problem. More than half of owners reported hiring or trying to hire employees, down four points from last month, but 50% reported few or no qualified applicants for the positions they were trying to fill, according to the June NFIB Jobs Report.

Thirty-six percent of all owners reported job openings they could not fill in the current period, down 2 points from May. Reports of higher worker compensation fell 6 points to a net 28% of all firms. Plans to raise compensation fell 3 points to a net 21%.

The net percent of owners raising average selling prices rose 7 points to a net 17%, seasonally adjusted. A net 7% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 percentage points

Fifty-four percent reported capital outlays, down 10 points, reversing May’s strong investment performance. This is the lowest level since at May 2015.

Three percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Twenty-nine percent reported all credit needs met (down 5 points) and 55% said they were not interested in a loan, up 1 point. Credit conditions are about as favorable as they have ever been in the 46-year survey history.

Consumer Pessimism

The Conference Board Consumer Confidence Index declined in June, following an increase in May. The Index now stands at 121.5, down from 131.3 in May, its lowest level since September 2017. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, and the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, declined significantly in June.

Consumers’ appraisal of current-day conditions declined in June; consumers’ assessment of the labor market was also somewhat less upbeat; consumers were less optimistic about the short-term outlook in June; and consumers’ outlook for the labor market was also less favorable.

The June Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) dropped more than 2% from May. The Index of Current Economic Conditions is now down more than 3% from one-year ago and the Index of Consumer Expectations declined more than 5% from June 2018.

University of Florida Consumer Sentiment Index reached its highest level in 17 years in April, consumer sentiment among Floridians plummeted 5.3 points in May to 96.4 from a revised figure of 101.7 in April. The last time consumer sentiment dropped more than five points was four years ago, in May 2015.

Economic Outlook

A growing credit card bubble is perhaps mirroring consumer behavior of ten years ago, shortly before the Great Recession. U.S. revolving credit, mostly credit card debt, made a sharp rebound for the second consecutive month, jumping by an annual growth rate of 8.2%, after surging 7.9% in April, in the wake of a 2.3% YOY (year-on-year) decline in March. The YOY gain is the highest monthly gain in more than five years, according to analysis by RAM Research.

With business and consumer confidence falling across-the-board plus investor concerns with interest rate direction, inverted yield curve and global oil disruption, not to mention, consumer credit rising, the signs of an impending recession grow more ominous each day noted Robert McKinley, Senior Analyst of CardData, CardTrak and CardFlash.