Small Business Optimism Cools More Than Expected

Small business optimism cooled more substantially than expected in March after approaching 45-year highs in February, according to the National Federation of Independent Business (NFIB), whose monthly Small Business Optimism Index fell 2.9 points in March to 104.7, the lowest reading since October but still in the top 5 percent of survey readings. Leading the monthly index lower and below consensus estimates were declines in expectations that the economy will improve, which were down 11 points to a still high net 32 percent, and an 8-point drop to a net 20 percent in expectations of higher real sales.

But the retreat from February's exuberant optimism was broad-based, with 8 of the 10 components of the index posting declines, including plans to increase capital outlays, down 3 points to a net 26 percent, current inventories, down 3 points to a net minus 6 percent, plans to increase inventories, down 3 points to a net 1 percent, expected credit conditions, down 3 points to a net minus 6 percent, and now is a good time to expand, down 4 points to a net 28 percent . Though earnings trends was also among the losers, shedding 1 point to a net minus 4 percent, this is still one of the best readings in survey history.

It was employment that registered the only gains, reversing February's weakening in the two components as plans to increase employment rose 2 points to a net 20 percent and current job openings rose 1 point to a net 35 percent. But labor remains the primary problem for small business owners for the third straight month, according to NFIB, with 89 percent of those hiring or trying to hire reporting few or no qualified applicants.

Overall, while the March survey results are less optimistic than expected, small business owners are continuing to ride a 16-month long wave of optimism largely fueled by the promise and then implementation of corporate tax cuts, the push towards deregulation, and other business-friendly policies of the current administration in Washington.