Optimism index: Small business owners shaken, not stirred

A monthly measure of optimism among small business owners has declined for a second straight month, an indication uncertainty persists in the small business sector over the strength of economic recovery.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index retreated seventh-tenths to 91.2 in April. The index lost 2.6 points in March.

“It’s difficult to know exactly why the outlook for small firms is in decline. But it’s a safe bet that political and economic uncertainty — about the deficit, the threat of inflation, rising energy and health costs — are at the top of the mind for most small business owners,” said Bill Dunkelberg, chief economist for the NFIB, a small business advocacy group based in Washington, D.C.

The index is based on the results of monthly surveys of nearly 2,000 randomly selected small business owners who belong to the NFIB.

“While it’s too early to say that a trend has emerged, a second consecutive month of decline in small business optimism does very little to encourage further confidence in a strong economic recovery,” Dunkelberg said. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring.”

For April, seven of 10 components of the index declined.

The proportion of owners responding to the survey upon which the April index was based who expect the economy to improve fell three points to net negative 8 percent, 18 points lower than in January.

While 50 percent of firms reported making capital outlays over the past month, the proportion of owners planning capital outlays over the next three to six months fell three points to 21 percent, a recession-level reading. Just 4 percent of owners said they consider now a good time to expand.

Fourteen percent of owners reported current job openings, down a point from March. A net 2 percent of owners plan to increase staffing over the next three months, unchanged from a month ago.

Dunkelberg said Labor Department reports of large gains in nonfarm payrolls — an estimated 244,000 in April — reflect hiring among large firms, not small businesses.

A net 12 percent of owners reported raising average selling prices, up three points from March and 23 points from September. A net 24 percent of owners reported plans to increase selling prices. The price increases follow the elimination of excess inventories.

The proportion of owners reporting higher sales over the past three months rose seven points to a net negative 5 percent, the best reading since December 2007. Meanwhile, reports of positive earnings trends rose six points to a net negative 26 percent.