Uncertainty dampens small business optimism

A monthly measure of confidence among small business owners has slipped as uncertainty over economic recovery persists.

The National Federation of Independent Business reported that its Index of Small Business Optimism retreated six-tenths of a point to 92.6 in December. The decline followed four months of gains that had put the index at its highest level in three years. Nonetheless, index readings have reflected recessionary conditions for 36 straight months. The index is based on the results of monthly surveys of small business owners across the country.

“The hope for a pickup in the small business sector did not materialize, but new weaknesses did not appear, either,” said William Dunkelberg, chief economist for the NFIB, a small business advocacy group.

“More owners expect their real sales volume to rise in the coming months, increasing the odds that more hiring and inventory investments will take place,” Dunkelberg said. “Overall, owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects.”

The proportion of owners responding to the survey upon which the December index was based who expect the economy to improve over the next six months fell seven points to a net 9 percent.

The share of owners who plan to make capital outlays in coming months edged up a point to 21 percent. Meanwhile, 8 percent of owners said now is a good time to expand, down a point.

A net 6 percent of owners reported plans to increase staffing, up two points from November and the highest reading in 27 months. A seasonally adjusted 13 percent of owners reported unfilled job openings, up four points.

While the employment outlook has improved, Dunkelberg doesn’t yet expect significant job growth. “Until sales pick up, there is no pressing reason to hire and job creation will remain slow.”

The share of owners reporting higher sales over the past three months slipped a point to a net negative 16 percent. However, a net 8 percent of owners said they expect higher real sales, up 11 points since September.

With more businesses reducing inventories than increasing them, a net negative 13 percent of owners reported growth in inventories.
A net 15 percent of owners reported plans to raise prices, the highest reading in 26 months. As the economy improves, prices are likely to move higher, Dunkelberg said. “Overall, this is not a deflationary outlook, but price increases will remain moderate for some time.”

The proportion of owners reporting positive earnings trends fell four points in December to a net negative 34 percent. Among owners reporting lower earnings, 55 cited weaker sales and 6 percent blamed higher materials costs.