Small Business

Small business owners’ optimism plunges in February

The tough winter appears to have taken its toll on small business owners last month. The National Federation of Independent Businesses reports its optimism index fell to its lowest level in a year.

The NFIB index fell 2.7 points last month to 91.4, a reading the organization said is usually associated with recessions and below-average growth. The biggest hit came in the area of hiring, where owners reported intent to hire dropped 5 points from January.

“Small business optimism hit a brick wall in February,” Chris Christopher, an economist for IHS Global Insight, said in a note to investors. “This report is not good news since small businesses are feeling the brunt of this sluggish economic recovery and many of the negative impacts of ‘bad’ winter weather.”

“The net percentage of small businesses reporting that they plan to hire fell to 7 percent in February,” he said, “from a 12 percent reading in January. More disturbing is that small business pessimism about the economic outlook has gone deep into negative territory.”

Owners continued to cut prices in an effort to reduce inventory. According to the report, “Seasonally adjusted, the net percent of owners raising selling prices was a net 1 percent, down point. Overall, there is little evidence that firms are able to raise prices much.” In addition to that, a net negative 2 percent of all owners reported growth in inventories (seasonally adjusted), two points lower than January.

The report also found reductions in business owners’ expectations for increased sales and improvement in the economy. The only index which rose in February was business owners’ plans to make capital outlays, which was up one point to a net 25 percent. Even that isn’t really good news as the NFIB says 25 percent is a “normal” reading and not indicative of significant expansion.

IHS’ Christopher said that while small businesses have been buffeted by problems there is still some cause for hope:

“Small businesses are exposed to consumer spending and construction; construction figures have been disappointing in recent months and retail sales have been subpar. … Looking ahead, we expect small business optimism to gain traction as the economy starts heating up in the second quarter.”