What declining small-business optimism means for Obama’s policies
There may be positive signs about economic growth, but small businesses aren’t buying it. They’re in no mood to bring on more workers or to expand operations. And they’re definitely not happy.
Put another way, famously upbeat small business owners seem to have adopted a glass is half empty attitude.
According to the latest National Federation of Independent Business, the Index of Small Business Optimism lost 1.2 points in March, dropping to 86.8. The persistence of index readings below 90–this is the 18th straight month– is unprecedented in survey history.
Specifically, the survey showed that plans to create new jobs are weak. And intentions to make capital expenditures over the next few months fell one point to 19%, three points above the 35-year record low. The net percent of all owners reporting higher nominal sales in the past three months improved 1 point to a net negative 25%. Fifty-eight percent reported that profits fell, up three points.
In addition, small businesses continued to liquidate inventories. And. thanks to weak sales, they had no reason to order new stock. Plans to add to inventories were unchanged at a negative 7% seasonally adjusted, meaning that more owners are going to reduce stocks than order new ones.
This all doesn’t bode well for the Obama administration’s current moves to boost bank lending to small business. Historically, as the NFIB says, weak plans to add inventory or expand operations mean companies aren’t particularly interested in borrowing. What they are interested in is seeing sales improve. And even the best deal in the world isn’t going to convince them they need a loan they might have trouble paying back.
Still, the logical conclusion isn’t to abandon small-business lending moves, because there are some companies that might like to borrow–ones with decent sales–and, by doing so, they could boost revenues even more and start hiring. But, it does mean that Obama needs to supplement his efforts with more than tax credits. Attack the problem on a number of fronts, not mostly through bank lending.
It’s a conundrum. The economy won’t improve until small businesses increase hiring. But they won’t do that until the economy improves.