Index: Small business optimism remains near two-year low

William Dunkelberg

A monthly measure of optimism among small business owners remains at one of its lowest levels in nearly two years as the outlook for labor and economic conditions worsens.

The National Federation of Independent Business reported that its Small Business Optimism Index rose a half point in December. But at 88, the reading is still the second lowest since March 2010. The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group.

Many business owners were uncertain as negotiations went to the very edge of a so-called “fiscal cliff” of higher taxes and automatic government spending cuts, said Bill Dunkelberg, chief economist for the NFIB.

“Congress played chicken right up to the end of the year, leaving small business owners with no new information about the economy’s future — no sense of how much their taxes would increase or if the economy would go over the now infamous ‘cliff,” Dunkelberg said. “The 11th hour deal has brought marginal certainty about tax rates and extenders and will provide some relief to owners. But it certainly doesn’t guarantee a more positive forecast for the economy.”

The results of the January surveys could be more telling, Dunkelberg said, as small business owners weigh in on higher taxes and minimal spending cuts. Moreover, the fiscal cliff deal didn’t address the looming federal debt limit, he added.

For December, six of 10 components of the index increased, while three decreased and one remained unchanged.

The share of owners responding to the December survey who expect better business conditions in six months held steady at a net negative 35 percent. While 11 percent of owners expect improving conditions, 45 percent anticipate worse conditions.

Taxes and regulations were cited as the top two most pressing business problems, while weak sales ranked a close third.

The proportion of owners who plan to increase staffing in the months ahead fell four points to a net 1 percent. Meanwhile, 16 percent of owners reported hard-to-fill job openings, down a point.

The share of owners planning capital outlays in the next three to six months rose a point to 20 percent. Just 8 percent of owners characterized now as a good time to expand, up two points.

The proportion of owners who expect to increase inventories  climbed a point, but remained at a net negative 2 percent.

The share of owners who anticipate increased sales volume in coming months advanced three points to a net negative 4 percent.

Reports of positive earnings trends rose three points, but remains at a net negative 29 percent.