The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index edged slightly higher from 88.9 in February to 90.8 in February. This was the fourth consecutive monthly gain, having fallen from 93.1 in October to 87.5 in November.
Even with this modest progress, the index remains at sub-par levels, with index values over 100 historically signifying an expanding sector. Small business leaders remain anxious about the economy, even as there were some signs of improvement. In many ways, this mirrored the higher sentiment levels observed in yesterday’s release of the NAM/IndustryWeek Survey of Manufacturers.
The net percentage of those saying that the next three months are a “good time to expand” has fallen from 7 percent in October to 6 percent in January to 5 percent in February. This indicates that there continues to be some skittishness in the small business community about the future. Of those saying that the next three months were not a good time to expand, their top reason was the economy, cited by 40 percent of respondents. This was followed by concern about the political climate, mentioned by 15 percent.
Looking at the items were ranked as the “single most important problem,” there was a tie between taxes and government regulations, with each garnering 21 percent. This is identical to the readings last month, with small businesses bearing the brunt of higher taxes in the fiscal cliff deal and smaller firms continuing to worry about the overall regulatory burden of new federal rules. Poor sales – a proxy for economic conditions – were the next highest problem, cited by 18 percent of those taking the survey.
Beyond these questions, many of the key indicators of company performance were not much different than last month. Sales expectations for the next three months improved from a net -1 percent to a net +1 percent for the month, but actual numbers of sales and earnings were unchanged. The data on employment was mixed. The net percentage of firms hiring dipping from 2 percent to -2 percent, but at the same time, the net percentage of those planning to hire in the next three months moving slightly higher from 3 percent to 4 percent. In all of these cases, it is clear that these levels are below where they should be.
One area that definitely improved was capital investment. The net percentage of firms planning to make a capital expenditure in the next three to six months rose from 21 percent to 25 percent. It had been as low as 19 percent in November and has risen each month since. Meanwhile, the pace of inventory shrinkage has slowed in February.
Chad Moutray is chief economist, National Association of Manufacturers.