Weighed down by worries over inventories and investment, U.S. small businesses were less optimistic in January, according to a closely-watched survey released this week. New data from the National Federation of Independent Business (NFIB) showed companies were increasingly concerned about short-term gains. The NFIB’s Small Business Optimism Index dropped 2.5 points to 97.9 in January, reversing a trend that took December’s sentiment figure to an eight-year high.
“November and December readings were very strong, possibly from post-election euphoria,” said Bill Dunkelberg, NFIB’s chief economist. “January’s decline was mostly due to owners being less optimistic about sales growth and business conditions, not spending and hiring plans.”
In fact, NFIB respondents appear to view the labor market as a strength for the U.S. economy. About 25% of business owners reported they increased pay for their staffers in January – the best reading since 2007. Meanwhile, data showed capital spending and expansion plans remained near recent highs as companies look for greater business opportunities. “Even though there is a decline in optimism, the small business sector is operating in a somewhat normal zone,” Dunkelberg said.
The largest area of decline was a 12-point drop of owners’ expectations that the economy would improve in the next six months. Overall, seven out of 10 data components fell compared to the mostly optimistic readings in November and December. “Regulation interference and taxes trump the list of concerns for small businesses while inflation risks and credit availability and costs are at the bottom,” Dunkelberg said. “Only a net three percent of owners reported raising average selling prices.”