The National Federation of Independent Business (NFIB) reported that its Small Business Index dropped lower again from 90.8 in February to 89.5 in March. The average index reading over the past five months (November to March) was 88.9, or significantly below the average for 2012 of 92.2. This suggests that the small business owners continue to quite anxious about the economy, with subpar readings in the NFIB index indicating soft growth in sales and earnings.
Indeed, the net percentage of those suggesting that the next three months are a “good time to expand” has fallen from 7 percent in October to 5 percent in February to 4 percent in March, its lowest level since August. Of those saying that the next three months were not a good time to expand, their top reason was the economy, cited by 36 percent of respondents. This was followed by concern about the political climate, mentioned by 16 percent.
The “single most important problem,” garnering 23 percent of the responses, was taxes. This is more than likely a reference to higher marginal tax rates for many small business owners this year – the result of the fiscal cliff deal enacted on January 2. The other top concerns were government regulations (21 percent) and poor sales (17 percent). All other choices were in single-digits.
Many of the key indicators tend to reflect a high degree of caution moving forward, and perhaps help to explain the increase in pessimism in the headline number. The net percentage of small business owners expecting their sales to increase in the next three months shifted from +1 to -4 for the month. The data suggest that smaller firms have shed workers on net in the past three months, with no change anticipated for the coming three months. This is the first zero reading in the survey for hiring plans since March 2012, ending 11 straight months of slow employment growth for the sector.
The net percentage of firms planning to make a capital expenditure in the next three months was unchanged at 25 percent. As noted last month, this figure has risen over the course of the past five months from a low of 19 percent in November.
In all this is not a positive report for small businesses. Business owners are still very cautious and nervous about the footing of our economy.
Chad Moutray is chief economist, National Association of Manufacturers.