Small Business Owners Optimism Edges Slightly Higher

The National Federation of Independent Business said that small business owner confidence was slightly higher in February. The Small Business Optimism Index rose from 93.9 in January to 94.3 in February. This was the sixth consecutive month that the index increased, with a steady improvement from the 88.1 reading of August. It is worth noting, though, that small business sentiment remains sub-par. The small business sector has historically expanded when the index exceeds 100 – a level that it has not seen since April 2006.

The net percentage of respondents saying that the next three months are a “good time to expand” fell from 9 percent to 8 percent. For the most part, small business owners remain anxious about the economic and political environment, as indicated by the reasons cited for their response on the expansion question. While many of the indicators in this survey have improved of late, it seems that progress has been slow, with owner anxieties playing a large role.

Since the beginning of the recession, “poor sales” – a proxy for the economy – have been cited as the “single most important problem.” In this survey, it still is, but the percentage stating this has been falling. It is now the most important problem for 22 percent of the respondents, down from 28 percent one year ago and 34 percent at its peak.  Right on its heels are “taxes” and “government regulations and red tape,” both with 21 percent each.

Improvements in the Small Business Optimism Index (and the “poor sales” figure) can be tied to increased confidence in many of the indicators. For instance, measures for expected sales, current job openings, expected compensation and inventory growth were all higher in February. Yet, many of the indicators remain weak, reflecting continued caution among many small business owners. For instance, fewer owners plan to increase employment this month, and credit conditions remain an ongoing concern.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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