Small business optimism index advances

A monthly measure of optimism among small business owners advanced in January, but owners remain less than upbeat in their plans to spend money on capital projects and hire employees.

The National Federation of Independent Business reported that its Index of Small Business Optimism rose 1.5 points to 94.1. The index is based on the results of monthly surveys of more than 2,000 small business owners across the country.

“Manufacturing and exporting are leading the recovery — industries and activities that are not labor intensive — while construction, an industry historically dominated by small firms, remains depressed,” said Bill Dunkelberg, chief economist for the NFIB, a small business advocacy group.

“While the economy is moving forward, albeit at a snail’s pace, it is not nearly fast enough to dramatically improve the employment situation, which continues to languish,” Dunkelberg added.

A net 10 percent of owners responding to the survey upon which the January index was based said they expect the economy to improve over the next six months — up a point from December, but not yet characteristic of a strong economic rebound.

The share of owners who plan to make capital outlays in coming months edged up a point to 22 percent, still historically low. Meanwhile, 8 percent of owners said now is a good time to expand.

The frequency of reported capital outlays over the previous six months rose four points to 51 percent of all firms. But Dunkelberg said most owners remain in “maintenance mode.”

A seasonally adjusted net 3 percent of owners reported plans to increase staffing, down three points from December. A seasonally adjusted 13 percent of owners reported unfilled job openings, which Dunkelberg said suggests little change in the unemployment rate.

The share of owners reporting higher sales over the past three months advanced five points, but remained at a net negative
11 percent. A seasonally adjusted net 13 percent of owners said they expect higher real sales, up five points from December and 16 points from September.

Small business owners continue to liquidate inventories in January, but at the lowest frequency in 34 months. With more businesses reducing inventories than increasing them, a net negative 10 percent of owners reported growth in inventories.

Downward pressure on pricing appears to be easing as more firms raise prices and fewer continue to cut them. A seasonally adjusted net 19 percent of owners reported plans to raise prices, up four points to the highest level in 27 months.

The proportion of owners reporting positive earnings trends increased in January, but remained at a net negative 28 percent. Among owners reporting higher earnings, 60 percent cited stronger sales and 7 percent credited higher selling prices. Among owners reporting lower earnings, 50 percent cited weaker sales and 5 percent blamed rising material costs.