Small Business Optimism Hits Two-Year Low

Tom Scott
CA Executive Director, National Federation of Independent Business

The NFIB business survey shows small business owners treading water with expected business conditions very negative.

The Index of Small Business Optimism fell 1 point in February to the lowest reading in two years, with six of the 10 indices declining and four remaining unchanged, according to the National Federation of Independent Business’ monthly economic survey released yesterday.

According to our NFIB Chief Economists William C. Dunkelberg, “A ho-hum outcome this month confirms that the small business sector is not performing with any strength. Small business owners are still waiting for a good reason to invest in the future.” 

Here in the Golden State, we see these trends unfold as a result of additional mandates and regulations on our job creators. Small businesses in California are unfortunately on the frontline every day facing new costs and burdens from the Legislature in Sacramento.

The overall Index dropped 1 point in February and now stands at 92.9, which is the lowest reading in two years and well below the 42-year average of 98. Spending and hiring plans weakened a bit as expectations for growth in real sales volumes fell. Earnings trends also weakened as owners continued to report widespread gains in worker compensation while holding the line on price increases. More firms reduced prices than raised them, a sign that small businesses are finding ways to absorb higher labor costs without affecting consumers. Also, the political climate continued to be the second most frequently cited reason for reluctance to expand.

Sales trends have moved down over the past few months. That trend continued in February. Expectations for future business conditions remained very negative, which indicates that small business owners do not plan to increase hiring or capital spending.

“Political uncertainty remains a major concern and the President does not seem inclined to address the major concerns of small business owners,” Dunkelberg said. “Every month, the Fed dithers on interest rate policy, giving the impression that the economy is weak.

All this generates uncertainty, the enemy of spending and hiring behavior that would move the economy forward at a faster pace.”

NFIB’s monthly Small Business Economic Trends survey is based on a monthly survey of small businesses. The survey was conducted in February and reflects the response of 756 small businesses.

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