Small-Business Confidence in U.S. Fell in December on Outlook
Confidence among U.S. small businesses dropped in December for the first time in five months, indicating a sustained rebound will take time to develop, a private survey found.
The National Federation of Independent Business optimism index decreased to 92.6 from November’s 93.2 reading that was the highest since the recession began in December 2007, the Washington-based group said today. Four of the index’s 10 components fell, led by a dimmer outlook on the economy.
“The hope for a pickup in the small business sector did not materialize,” William Dunkelberg, the group’s chief economist, said in a statement. “Owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects.”
The report reflects an economic recovery that hasn’t been strong enough to reduce unemployment, which has exceeded 9 percent for 20 straight months. It also helps explain why Federal Reserve policy makers are pushing ahead with a second round of monetary easing and are holding borrowing costs near a record low.
The gauge of expectations for better business conditions six months from now fell 7 percentage points to a net 9 percent, today’s report showed. An index of whether firms think this is a good time to expand fell 1 point to a net 8 percent.
A measure of earnings fell 4 points to minus 34 percent. At the same time, the net percent of small business owners projecting higher sales, adjusted for inflation, climbed 2 points to 8 percent.
The survey’s net figures are calculated by subtracting the percent of business owners giving a negative answer from those giving a positive response and adjusting the results for seasonal variations.
A net negative 11 percent of business owners expected credit conditions to ease, 1 point worse than the prior month.
While plans for capital investment over the next few months rose 1 point to a net 21 percent, small businesses remained cautious on inventories. A net minus 3 percent of firms plan to add to stockpiles, down 3 points from November, while firms reporting inventories as too low held at a net minus 3 percent.
Figures on the employment outlook were more promising. Small businesses with plans to add to payrolls rose 2 points to net 6 percent, a 27-month high. A net 13 percent of firms in the December survey said they were having trouble filling job openings, up 4 points from November.
“Overall job creation is likely to continue, but at a tepid pace,” Dunkelberg said in the statement. “Until sales pick up, there is no pressing reason to hire.”
Inflation remained contained, the survey showed. December was the 25th consecutive month when more small business owners reported cutting average selling prices than raising them. At the same time, plans to raise prices rose to the highest reading in 26 months.
The NFIB report was based on 804 survey responses through Dec. 31. Small businesses represent more than 99 percent of all U.S. employers and have created 65 percent of all new jobs in the past 17 years, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise employing up to 500 people.
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