Small Business Optimism Slips

The small business optimism index slipped 1 point in February to 92.9, a 2-year low that reflects incremental declines across six of 10 components. The report's two employment components both inched 1 point lower with plans to increase employment still at a positive reading of 10 and job openings hard to fill still at a very strong 28 which leads all components. Earnings trends, however, are very weak, down 3 points to minus 21 and reflecting what the report cites as higher labor costs that are not being passed through to selling prices. Sales expectations also fell 3 points but are doing better than earnings which are at the zero level. Weak earnings and sales are negatives for business investment with plans for capital outlays and expansion intentions both down 2 points but with both readings still strongly positive at 23 and 8 respectively. Underlying strength for business investment and employment, however, is not likely to hold up for very long given weakness in earnings and sales.

Recent History Of This Indicator
The small business optimism index had been on the climb before January's 1.3 point dip to 93.9, one that reflected deepening doubts over both the economic outlook and sales expectations. Plans to increase employment also came down but nevertheless remained solidly in the plus column. Forecasters see this index bouncing back slightly, at a consensus 94.2 for February.