Small business optimism dropped 2.7 points to 91.4 in February, the National Federation of Independent Business reported, a reading it says historically has been associated with “recessions and periods of sub-par growth.”
Blame the poor showing on uncertainty, according to NFIB Chief Economist Bill Dunkelberg.
“Lacking any progress in Washington and facing continued unknowns with the healthcare law, the EPA, the minimum wage, tax reform and more, it is no surprise that the Small Business Optimism Index fell, reversing a few months of modest gains,” said Dunkelberg. “As long as uncertainty remains high, owners will remain cautious when it comes to increasing inventory. Business owners aren’t going to bet their money on a future they cannot see clearly.”
Small business owners also were clearly not seeing enough demand to make investments. Only 3% said they expect sales to move higher, a drop of 12 points from January. The percent of owners expecting to add to their inventories also fell, NFIB noted, “indicating little appetite to add to stocks in the current environment.”
Of the 10 components of the NFIB survey, one did improve from January – capital outlays. It rose 1 point to 25%. Calling that the “silver lining” in the report, Sonny Scarfone, an economic analyst with TD Economics, said it offered hope that “a little more sunshine and vitamin D will lift the spirits of small businesses in the months ahead.”
The NFIB findings were in sharp contrast with the first quarter NAM/IW Survey of Manufacturers, in which 86.1% of employers said they were optimistic about their own company's outlook. While small manufacturers predicted increased sales in the year ahead, they were less optimistic than medium or large-sized employers about their business prospects and spending plans.