Small-Business Optimism in U.S. Improves for Second Month

Confidence among U.S. small businesses rose in January for a second month after lawmakers reached a last-minute deal to avert a sweeping increase in income taxes.

The National Federation of Independent Business’s optimism index improved to 88.9 last month from 88 in December. Seven of the measure’s 10 components contributed to the gain in January, the Washington-based group said.

The agreement by President Barack Obama and Congress on Jan. 1 that also delayed government spending cuts helped stabilize the sentiment gauge, which dropped in November to the lowest level since March 2010. At the same time, Congress has until March 1 to reach a deal and avoid automatic budget reductions that are a risk to an economy that unexpectedly shrank at the end of 2012.

“The fourth-quarter decline in GDP was not a confidence builder,” William Dunkelberg, the group’s chief economist, said in a statement. “Business investment and housing looked OK. Consumer spending, especially on non-durables was not strong.”

Gross domestic product dropped at a 0.1 percent annual rate in the fourth quarter, the worst performance since the second quarter of 2009, depressed by a smaller gain in inventories and a decline in military spending.

The NFIB report was based on a survey of 2,033 small-business owners through Jan. 28. Congress passed a bipartisan agreement on Jan. 1 making permanent the George W. Bush-era income tax cuts for 99 percent of Americans while letting them end for top earners. The agreement, which also allowed the payroll tax to rise 2 percentage points, left undetermined what to do about automatic government-spending cuts.

Employment Plans

Last month’s improvement in the small-business index was helped by an increase in those planning to add more workers. A net 3 percent said they expect to add to headcount, compared with a net 1 percent in the previous survey. A gauge of hard-to-fill openings advanced by 2 percentage points to 18 percent.

Employers added 157,000 jobs in January after a revised 196,000 rise the prior month and a 247,000 gain in November, Labor Department figures showed on Feb. 1.

The share of companies planning capital spending in the next three months to six months increased 1 percentage point, also helping the overall measure of sentiment.

The gauge of the net share of small businesses projecting improved economic conditions six months from now registered the biggest increase of all the components in January, jumping 5 points to minus 30 percent. In December, the measure held at minus 35 percent, the lowest since monthly records began in 1999.

Credit Conditions

While the index of credit conditions improved, more still expect it will be harder to arrange financing than easier. The group’s measure rose 2 percentage points to minus 9 percent.

The survey’s net figures are calculated by subtracting the percent of business owners giving a negative answer from those with a positive response and adjusting the results for seasonal variations.

The gauge’s reading of 88.9 compares to a low of 81 in March 2009, according to NFIB monthly data going back to 1986. The index peaked at 107.7 in November 2004.

Small companies represent more than 99 percent of all U.S. employers, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise with no more than 500 employees.

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