The National Federation of Independent Business said that small business owner confidence edged slightly higher to begin the new year. The Small Business Optimism Index rose from 88.0 in December to 88.9 in January. Nonetheless, it is hard to paint these figures in a positive light, particularly with low readings for three straight months. In October, the index stood at 93.1 before plunging to 87.5 in December. Recent gains still suggest sub-par levels of optimism, with owners remaining anxious about the economic and political environment.
There was a net percentage of 6 percent of respondents suggesting that the next three months were a good time to expand. Of those saying tht it was not a good time, economic and policy concerns were most pressing. Indeed, the most important problems — each garnering 21 percent of responses — were taxes and government regulations. The tax challenge that confronts many small business owners would be the higher tax rates faced by many of them resulting from the fiscal cliff deal. Poor sales were cited by 19 percent.
Many of the key indicators remain weak, even as some of them had marginal improvements for the month. For instance, the net percentage of those experiencing sales gains in January was -9 percent, a slight bit of progress from the -15 percent and -10 percent levels seen in the prior two months. Similarly, the percentage of respendents expecting the economy to improve stayed extremely low (-30 percent), and measures for earnings, prices, hiring, and capital spending continue to be sluggish.
Overall, the NFIB data indicate that small business owners remain pessimistic in January. Given the important role that small firms play in our nation’s economy, that is a troubling sign. Historically, Optimism Index readings of 100 or more were consistent with a healthy and growing small business sector, and we remain well below those levels.
Chad Moutray is the chief economist, National Association of Manufacturers.