Small business optimism persists, but outlook uncertain

William Dunkelberg

A monthly measure of optimism among small business owners has edged up on more upbeat expectations for the economy and staffing. But the threat of the coronavirus outbreak could cause uncertainty.

The National Federation of Independent Business reported its Small Business Optimism Index rose two-tenths of a point to 104.5 in February.

That level ranks among the top 10 percent of all readings in the 46-year history of an index based on the results of monthly surveys of members of the small business advocacy group, most of them small business owners. What’s less clear is to what extent the coronavirus outbreak will affect small business optimism moving forward.

“February was another historically good month for the small business economy. But it’s worth noting that nearly all of the survey’s responses were collected prior to the recent escalation of the coronavirus outbreak and the Federal Reserve rate cut. Business is good, but the coronavirus outbreak remains the big unknown,” said William Dunkelberg, the chief economist of the NFIB.

For February, four of 10 components of the index advanced, while six retreated.

The proportion of those responding to the survey upon which the February index was based who expect the economy to improve rose eight points from January to a net 22 percent.

A net 26 percent of respondents reported plans to make capital outlays, down two points. The same proportion of respondents said they consider now a good time to expand, also down two points.

A net 21 percent of respondents reported plans to increase staffing, up two points. A net 38 percent reported hard-to-fill job openings, up a point. Asked to identify their single most important business problem, 25 percent cited finding qualified workers. That’s two-point below the record high in August.

“Firms will likely continue offering improved compensation to attract and retain qualified workers as the labor market remains highly competitive,” Dunkelberg said. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

A net 19 percent of those responding to the survey said they expect higher sales, down four points.

The proportion of those reporting higher earnings fell a point. At a net negative 4 percent, more respondents reported lower earnings than higher earnings.

A net 2 percent of respondents reported plans to increase inventories, down two points. At a net negative 4 percent, more respondents reported current inventories too high than too low.