Small Business Optimism Hits Three-Year High

While chunks of the country continue to dig out from winter weather, small businesses may already be feeling a long-awaited thaw. The National Federation of Independent Businesses’ monthly confidence check just reached its highest level since December 2007.

The NFIB Small Business Optimism Index punched in at 94.1 in January, a 1.5-point bump from the end of 2010. It was a particularly key checkpoint for the index, which dipped in December after four consecutive months of increases. The January survey included 2,144 NFIB-member businesses.

The NFIB is fairly quick to play the role of Scrooge — it notes that the relatively upbeat number is still “well below historical levels,” and its commentary in the report tends to highlight the negative. For example: “So there was a modest increase in owner optimism, 94.1, the best reading since the economy peaked in December 2007. However, that reading was the 2nd lowest in 2007, so not a great accomplishment.” In a sense, the NFIB is just doing its job: As a “pro-business” group, it should pine for headier economic times. (As always, keep in mind that the organization also has an active political agenda.)

Since it’s an optimism report, allow me to take a quick look at the brighter side. Seven of the index’s 10 primary components gained ground in January, and two remained unchanged. The one component in negative territory: The number of firms with plans to hire in the next three months dropped three percentage points from the December readout.

Overall sentiment gained another point in January, with a net positive 10 percent of businesses saying that conditions will be better — rather than worse — six months from now. That particular gauge spent most of the past several years in negative territory. Small business sales gained five points over the past three months, and sales expectations for the next three months likewise picked up five points. The measure of actual sales remains in net negative territory, but has improved 20 points since January 2009.

True, small businesses might not be partying quite like it’s 1999 — or even like it’s 2006, when the NFIB index routinely hit the high 90s and cracked 100 in four of the year’s months. The NFIB notes that the average pre-recession index was 100. Are conditions today perfect? Nah. It’s called a recession for a reason, and this last one was dubbed “The Great Recession” to boot. Its effects — especially on small businesses — aren’t going to vanish overnight.

Still, things seem to be moving the right direction again. Don’t expect a Main Street parade as businesses get back to, well, business. Main Street, that increasingly popular umbrella for local businesses, is too busy working.

About Kevin Casey

Kevin Casey is a regular contributor here, at InformationWeek and elsewhere. Find him on Twitter @kevinrcasey.
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