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Small Business Owners Grow Less Optimistic

By Hal M. Bundrick

NEW YORK (MainStreet) The cultural core and primary driver of the American economy, small businesses, are growing more cautious and less likely to hire. The National Federation of Independent Business has released its Small Business Optimism Index, and the results are weak. Small-business optimism dropped from 93.9 to 91.6, with seven of the ten index components turning negative.

"Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future," says NFIB chief economist Bill Dunkelberg. "The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the disastrous healthcare law and little else. We shouldn't expect skies to turn blue anytime soon."

More than two-thirds (68%) of owners surveyed feel that now is a bad time to expand; 37% said the political climate in Washington is to blame -- a record high level.

However, job creation was up in October as NFIB owners increased employment by an average of 0.11 workers per firm in October after September's decline. It is still difficult for many small business owners to find workers though; as 21% of all owners reported job openings they could not fill during the current period.

Sales are worrisome. Owners reporting higher nominal sales in the past three months compared to the prior three months dropped 2 points to -8%. The net percentage of owners expecting higher real sales volumes going forward fell 6 points to 2% of all owners.

Pessimism among the "Moms and Pops" is growing. Small business owners expecting better business conditions within six months was a net -17%, 7 points worse than September and 15 points worse than August.

As a result, many owners are cutting back inventories. A net -6% of all owners reported growth in inventories, up 1 point from September. For all firms, a net -5% (a 5 point drop) reported stocks too low, the lowest reading since 2011.

Business owners are keeping their prices in-check as well, as 16% reported hiking prices (up 2 points) while 14% reported discounting prices within the past three months (unchanged). As for prospective price increases, 20% plan on raising average prices in the next few months (unchanged), and 3% plan reductions (up 1 point).

--Written by Hal M. Bundrick for MainStreet

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