Small Business Optimism Drops in February --Is Washington, D.C. to Blame?

The Small Business Optimism Index lost 1.3 points in February, falling back to the December reading of 88.0 and landing only 7 points higher than the survey's second-lowest reading reached in March 2009, reports the National Federation of Independent Business. (The index's lowest reading was 80.1 in 1980.)

The persistence of Index readings below 90 is unprecedented since surveys were started in 1986.

Small business owners continue to cite poor sales as their top problem. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 26 percent, unchanged from January's reading.

And without sales:

Small businesses don't need to hire new employees. In February, ten percent of the 799 small business owners in the survey increased employment by an average of 5.0 workers per firm, but 19 percent reduced employment an average of 3.2 workers per firm (seasonally adjusted). Over the next three months, 8 percent plan to reduce employment (down 2 points), and 13 percent plan to create new jobs (up 3 points), yielding a seasonally adjusted net negative 1 percent of owners planning to create new jobs, unchanged and still more firms planning to cut jobs than planning to add.

Small businesses don't need to order new stock. A net negative 18 percent of all owners reported gains in inventory stocks (more firms cut stocks than added to them, seasonally adjusted), 10 points better than December's record liquidation. Plans to add to inventories (on purpose) lost 3 points, falling to a negative 7 percent of all firms (seasonally adjusted) still more owners are planning to reduce stocks than planning new orders (and not borrowing money to support inventory investment). Seasonally unadjusted, 14 percent plan to add to stocks while 15 percent will reduce them.

There are also continuing concerns regarding credit. A net 12 percent reported loans harder to get than in their last attempt, 2 points better than January. 34 percent reported regular borrowing, up 2 points from January and historically very low.

In general, headlines about the economy are starting to turn more positive. So, why the pessimism among small business owners? According to Bill Dunkelberg, NFIB's chief economist, it boils down to a disconnect between Main Street and Washington, D.C.

"News about the economy is for the most part improving, and therefore is an unlikely source of small business uncertainty and declining optimism. The Washington, D.C. agenda, on the other hand, remains a nightmare for small business owners and continues to be a real factor in small business owners not expecting business conditions to improve," he says.

How do you see it? Why do you think small business owners are voicing "declining optimism?"

TAGS: Finance
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