Last month’s fiscal cliff negotiations seem to have taken a toll on the confidence of small business owners, with the National Federation of Independent Business’s Small Business Optimism Index edging up only slightly in December.

The NFIB said Tuesday that small business owner optimism crept up 0.5 over November’s historically-low report, the 88 point reading was still the second lowest since March 2010. December’s poor report resulted largely from a deterioration of labor market components, and the surprising percentage of owners who still expect business conditions to worsen in the next six months, the NFIB noted.

[IMGCAP(1)]“Congress played chicken right up to the end of the year, leaving small-business owners with no new information about the economy’s future—no sense of how much their taxes would increase or if the economy would go over the now infamous ‘cliff,’” said NFIB chief economist Bill Dunkelberg in a statement. “The eleventh hour ‘deal’ has brought marginal certainty about tax rates and extenders and will provide some relief to owners, but it certainly doesn’t guarantee a more positive forecast for the economy. The January survey results will be far more enlightening about how the sector views the deal—higher taxes and minimal spending cuts may not be a panacea. And let’s not forget what is looming on the horizon: a debate over the debt limit and a regulatory avalanche of historic proportions about to spill out into the country. Happy New Year.”

NFIB’s index remains at a recession-level reading as pessimism prevails, however, and December’s reading is certainly not typical during a recovery. Seventy percent of owners surveyed characterized the current period as a bad time to expand; one in four of them cite political uncertainty as the top reason. Taxes (23 percent) and regulations (21 percent) rank as the top two business problems, with “poor sales” as a close third (19 percent).

Small-business sales showed some improvement, with the net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months improving 5 points, but rising only to a negative 10 percent.  Seasonally unadjusted, 18 percent of all owners reported higher sales (last three months compared to prior three months, down 1 point), and 30 percent reported lower sales (down 1 point).  Consumer spending remains weak, especially on services although auto sales have recently shown some strength. The net percent of owners expecting higher real sales volumes rose 3 points to a negative 2 percent of all owners (seasonally adjusted), 14 points below  the 2012 high of net 12 percent reached in February.  Not seasonally adjusted, 20 percent expect improvement over the next 3 months (up 1 point) and 40 percent expect declines (down 3 points).

Job creation in December was essentially zero, although it improved infinitesimally from the November report. The average change in employment per firm increased to 0.03, up from -0.04 workers, with 11 percent of surveyed owners (up 1 point) reporting they added an average of 2.9 workers per firm over the past few months, and 13 percent reducing employment (up 1 points) an average of 1.9 workers (seasonally adjusted). The remaining 76 percent of owners made no net change in employment.  Forty-one percent of the owners hired or tried to hire in the last three months and 33 percent (80 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. Sixteen (16) percent of all owners reported they had hard-to-fill job openings, a drop of 1 point from the previous month. Job creation plans weakened substantially, falling 4 points and indicating that only (a net) one percent of owners plan to increase employment in the months to come. Not seasonally adjusted, seven percent of owners plan to increase employment at their firm (down 4 points), but 11 percent plan reductions (down 2 points).

Desire for new lines of credit is weak among small-business owners; 52 percent explicitly said they did not want a loan (65 percent including those who did not answer the question, who are assumed to be disinterested in borrowing). Six percent of owners surveyed reported that all their credit needs were not met, unchanged from November, and 29 percent reported all credit needs met. Only one percent of owners reported that financing was their top business problem, tied for the lowest reading in survey history. Twenty-nine (29) percent of all owners reported borrowing on a regular basis, down 1 point from November. A net nine percent of small employers reported that loans are now “harder to get” when compared to their last attempt (asked of regular borrowers only), also unchanged from November. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 11 percent (more owners expect that it will be “harder” to arrange financing than easier), 1 point worse than in November. 

Capital spending remained in “maintenance” mode—historically low—and plans to make capital outlays remained at recession levels. The frequency of reported capital outlays over the past six months fell 1 point to 52 percent. The percent of owners planning capital outlays in the next three to six months rose 1 point to 20 percent. Eight percent of owners characterized the current period as a good time to expand facilities (up 2 points), but the net percent of owners expecting better business conditions in six months was a net negative 35 percent, unchanged from November’s sharp decline. Not seasonally adjusted, 11 percent of owners expect an improvement in business conditions (up 2 points), and 45 percent expect deterioration (down 4 points). A net negative 2 percent of all owners expect improved real sales volumes, up 3 points. Overall, there was no sign that capital spending might be returning to levels more consistent with past recovery periods.

Tuesday’s report is based on the responses of 648 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of December. The complete study can be downloaded at


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