The National Federation of Independent Business reported that its Small Business Optimism Index was virtually unchanged in September. The index edged slightly lower from 92.9 in August to 92.8 in September. While this is an improvement from June and July, when the index was 91.4 and 91.2, it is lower than the sentiment observed in April and May when the index was 94.5 and 94.4.
One year ago, the index stood at 88.9, suggesting some improvement over the past 12 months. Still, historically, a strongly expanding small business sector corresponds to index values of 100 or greater, indicating that there is significant room for more growth.
The main driver of lower values in the index over the past four months has been slower sales and reduced earnings. The net percentage of sales turned negative in June and has worsened since then, currently standing at -13 percent. Sales are also the most important reason for lower profits. Another concerning data point is the net percentage of small business owners planning to hire in the next three months, which fell from 10 percent to 4 percent for the month. This suggests that hiring intentions have eased in September.
With all of that said, the net percentage of respondents saying that the next three months would be a “good time to expand” rose from 4 percent to 7 percent. This is a modest gain, albeit one that suggests weak growth ahead. It is clear that small business owners are anxious about the economy, the election and the fiscal cliff. Of those saying that the next three months were not a good time to expand, the top reasons cited were economic conditions and the political climate.
The single most important problem according to small business owners was a three-way tie between taxes, poor sales, and government regulations and red tape. Each of these answers received 21 percent of the responses. This question’s top concern has hovered between taxes and poor sales over the past few months.
Chad Moutray is chief economist, National Association of Manufacturers.
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