Small Business Optimism Slips in January

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for January fell 1.3 points from 95.2 in December to come in at 93.9. The January reading remains well below the index’s 42-year average of 98.

The four “hard” measures of the index posted mixed results last month. The job creation component fell four percentage points in January to 11%, the job openings component rose one point to 29%, capital spending plans remained unchanged at 25% and inventory investment plans fell two points to post a negative 1% reading.

Some 27% of small business owners plan to raise employees’ pay in the next several months. That’s up five points on a seasonally adjusted basis

In its commentary on the report the NFIB noted:

The decline in optimism was accounted for by two important Index components, expected business conditions in six months and expected real sales. These expectations are important determinants of decisions to hire, to expand business operations and to order new inventory, all drivers of economic growth. Fed policy provides liquidity and depresses interest rates but provides no encouragement to owners to spend and produce some “inflation”. Indeed, policy pronouncements convey a sense of desperation which is not supportive of positive expectations for the economy.

The labor market continues to show strength, driven by the core growth in the economy that results from the addition of 3 million new people every year … But uncertainty continues to cloud the future. Politicians are promising “free stuff” but that means less freedom to Main Street that will be expected to pay for it. … Global events are not encouraging, indicative of more confusion and violence to come. … Overall, it is unlikely that anything will occur that will raise the spirits of small business owners and rekindle the “animal spirits” that are needed to spur economic growth.

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The NFIB reports that 29% of business owners currently have positions open that they are unable to fill (up a percentage point from November) and that 45% said there were few or no qualified applicants for the open positions, up one point from the prior month’s total.

Business owners said their single most important problem is taxes (21%), government regulations and red tape (18%) and quality of labor (15%). The least important problems are inflation (2%) and financing and interest rates (2%).