Small business index: economy “crawling forward”

A monthly index tracking optimism among small business owners has increased on reports of increased capital spending and hiring, but remains well below its pre-recession average.

The National Federation of Independent Business reported that its Small Business Optimism Index rose 1.4 points to 93.9 in December. Although the index has advanced for two months, it remains below the average reading of 100 before the recession. “While there has been no sign that a real recovery has begun, we can be encouraged that the economy is at least crawling forward and not heading in reverse” said Bill Dunkelberg, chief economist for the NFIB.

The manufacturing, construction and professional service sectors have improved, Dunkelberg said. But consumer spending, especially on services, lags. Moreover, challenges to further improvement persist, including politics during an election year, he added.

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group.

For December, five of 10 components of the index advanced, while three retreated and two remained unchanged.

The proportion of small business owners responding to the survey upon which the December index was based who expect the economy to improve over the next six months jumped nine points. But at a net negative 11 percent, the reading reflected more  pessimistic than optimistic responses. 

The share of owners who plan to make capital outlays over the next three to six months rose two points to 26 percent. Meanwhile, 64 percent of owners reported outlays over the past six months, an increase of nine points to the highest reading since early 2005. A net 10 percent of owners characterized now as a good time to expand, up a point.

The proportion of owners planning to increase inventories fell two points to a net negative 2 percent. A net negative 5 percent of owners deemed current inventories too low, down a point.

A net 8 percent of owners plan to increase staffing in the months ahead, down a point. The share of owners reporting hard-to-fill job openings remained unchanged at 23 percent. At the same time, owners increased employment an average of 0.24 workers in December, the best reading since February 2006.

The proportion of owners who expect higher sales volume advanced five points to a net 8 percent. While 14 percent of owners still cited weak sales as their top business challenge, that’s the lowest level since June 2008.

Reports of positive earnings trends increased two points, but remained at a net negative 22 percent.