Small business optimism index regains ground, but latest results mixed

William Dunkelberg

While a monthly measure of optimism among small business owners continues to regain ground, the latest readings reflect as much bad news as good.

“The optimism index barely budged in January. The only good news is that it budged up, not down,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business.

The NFIB reported that its Small Business Optimism Index rose nearly a point in January to 88.9.

With modest increases in each of the last two months, the index has regained some of the nearly six-point drop in November attributed to concerns over the so-called fiscal cliff of higher federal taxes and automatic government spending cuts. Still, the index remained well below a pre-recession average of 100, not to mention the level of 93.1 posted in October.

“With the dismal news that our economy actually contracted in the fourth quarter of 2012, it isn’t any wonder that more small firms expect their real sales volume to fall, few have plans to invest in new inventory and hardly any owners are expanding or hiring,” Dunkelberg added. “Owner pessimism is certainly not surprising in light of higher taxes, rising health insurance costs, increasing regulations and just plain uncertainty.”

Gross domestic product, the broad measure of all goods and services produced in the country, fell to an annual rate of a negative tenth of a percent, according to estimates for the fourth quarter of 2012.

  The NFIB bases its Small Business Optimism Index on the results of monthly surveys of more than 2,000 randomly selected members of the small business advocacy organization.

For January, seven of 10 components of the index advanced and three retreated.

The share of small business owners responding to the January survey who expect improved business conditions in six months rose five points. But at a net negative 30 percent, the reading is the fourth lowest in the nearly 40-year history of the survey.

The proportion of owners who plan to increase staffing in the months ahead increased two points to a net 3 percent. Meanwhile, 18 percent of owners reported hard-to-fill job openings, also up two points.

The share of owners planning capital outlays in the next three to six months edged up a point to a net 21 percent. Just 6 percent of owners characterized now as a good time to expand, down two points.

The proportion of owners planning to increase inventories dropped three points to a net negative 7 percent. A net negative 1 percent of owners reported current stocks too low — down a point, but historically a good level of satisfaction with inventories.

The share of small business owners who expect higher real sales volume rose a point to a net negative 1 percent, still 13 points below the level reported for February 2012. Meanwhile, 19 percent of owners cited weak sales as their most pressing business problem.

Reports of positive earnings trends advanced three points, but remained at a net negative 26 percent.