Small Businesses Optimism Sags

Although still hiring and spending, small businesses have lower expectations about growth in real sales.
Katie Kuehner-HebertFebruary 9, 2016

Optimism among small business owners fell in January — as their sentiments on general business conditions over the next six months as well as their expectations for sales soured, according to the National Federation of Independent Business’s latest Small Business Economic Trends report.

The Small Business Optimism Index fell 1.3 points in January to 93.9, below the historical average of 98, and the weakest since February 2014.

“The Small Business Optimism Index fell a bit more than one point, not much of a response to stock market turbulence or the Federal Reserve’s move to raise interest rates,” NFIB’s chief economist William Dunkelberg said in a blog post on the trade group’s site. “The decline in optimism was accounted for by two important index components, expected business conditions in the next six months and expected real sales. Overall, it is unlikely that anything will occur that will raise the spirits of small business owners.”

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Still, hiring and overall spending among small businesses remained solid last month. A net 11% of small-business owners said they plan to create new jobs in the coming months, down from a high of 15% in December. Moreover, a seasonally adjusted net 27% of small-business owners reported raising worker compensation, the strongest increase in firms raising pay since 2007.

The NFIB’s findings on hiring were similar to those from ADP and Moody’s, according to The Wall Street Journal.

“Despite a broader trend of corporations slashing spending budgets, firms surveyed by the NFIB continued to make capital outlays at a solid clip and they suggested no planned changes to capital expenditures in the months ahead,” the WSJ wrote. “That is as a rising number of owners said it is a good time to expand.”

The NFIB’s survey result also fits with what the Labor Department said in the January payrolls report, when average hourly earnings climbed 0.5%, the best monthly gain in a year, according to MarketWatch. However, the NFIB survey said the percentage of small business owners planning to raise compensation in the coming months fell to 15% from 21%.

Jim O’Sullivan, chief U.S. economist at High Frequency Economics, told MarketWatch that the discrepancy suggests the gains in January pay were largely due to one-time state minimum wage hikes.

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