The National Federation of Independent Business (NFIB) said that small business confidence moved slightly higher in January, edging up for the third straight month. The Small Business Optimism Index rose from 93.9 in December to 94.1 in January, essentially where it was in July and August prior to the partial government shutdown.
Taking a longer view, sentiment among smaller firms has increased over the course of the past year; in January 2013, the index stood at 88.9. Still, it is also clear that small business confidence remains subpar, with the Optimism Index well below 100 – its threshold for stronger activity. It has not exceeded 100 since October 2006, over seven years ago.
On the positive side, smaller firms appear more likely to add workers. The net percentage of respondents planning to hire in the next three months increased from 8 percent to 12 percent, its highest level since September 2007. Along those lines, sales expectations for the next three months were also higher, up from 8 percent to 15 percent. Nonetheless, earnings growth remained weak.
Even with better confidence data in January, small businesses remain anxious about the economy. The percentage of firms saying that the next three months were a “good time to expand” dropped from 10 percent in December to 8 percent in January. Of those saying that it was not the right time for expansion, the primary reasons cited were political and economic concerns. The “single most important problem” was taxes, with 24 percent of respondents noting this as a top challenge. This was followed by government regulations (22 percent) and poor sales (14 percent).
Chad Moutray is the chief economist, National Association of Manufacturers.