The numbers: Small businesses know the economy is going to be terrible in the short run and that their own sales might suffer a record drop, but they are more hopeful the corner will start to turn in the next several months, a closely followed survey shows.
The optimism of small companies in the U.S. economy fell 5.5 points to 90.9 in April, the National Federation of Independent Business said Tuesday. The drop in April was not nearly as bad as Wall Street expected. Economists had expected a reading of 84.8, according to Econoday.
The index had posted an even bigger decline in March that was the largest ever recorded.
What happened: Sales expectations for the next six months tumbled 30 points to -42, the lowest level in the NFIB survey’s 46-year history.
Read:April is likely to be the cruelest month for retailers as sales slump and prices tumble
At the same time, however, small-business owners said they think business conditions will gradually improve. An index of expected business conditions six months from now climbed 24 points to erase all of March’s decline.
“Owners’ optimism about future conditions indicates they expect the recession to be short-lived,” the NFIB said.
What’s given small businesses some hope is hundreds of billions in dollars of federal aid. The government is providing forgivable loans for small businesses to keep paying employees over the next few months. The law requires companies to spend at least 75% of the loan on payrolls.
Yet the law governing aid to small business, known as the Paycheck Protection Program, is still drawing criticism for being too inflexible. Restaurants and certain other kinds of businesses say such a requirement would handicap their effort to meet other expenses, stay open and survive.
See: MarketWatch Economic Calendar
Big picture: Just a few months ago, small businesses were very optimistic. Many said their biggest problem was finding skilled workers to fill a surplus of open jobs.
Now they are trying to avoid widespread layoffs and going out of business. The government loans will help, but the key is how quickly the economy starts the long journey back to normal.
Most economists think it will be a few years — a bleak prospect for many small businesses if it turns out to be true. The U.S. recovery will be painfully slow if there are not as many companies to which workers can return.
What they are saying? “The full force of the recession has not yet been felt as programs such as PPP encourage firms to maintain employment even as the government shutdown reduces business activity,” said NFIB chief economist William Dunkelberg.
“A large percentage of the unemployed expect to be rehired as the economy opens back up, but the picture is further confused by unemployment benefits that for many exceed previous pay,” he added. “Small business owners are starting to rehire laid-off employees as states lift business restrictions and small business loans are hitting bank accounts.”
Market reaction: The Dow Jones Industrial Average DJIA, -0.44% and S&P 500 SPX, +0.01% fell on Monday, and futures ES00, +0.15% were slightly weaker ahead of Tuesday’s open.
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