Small Business Confidence Plunges to Near 3-Year Low After Election, Superstorm Sandy

Tuesday, 11 Dec 2012 07:36 AM

 

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Confidence among U.S. small businesses plunged in November as owners grew increasingly concerned the economy will slump, a survey found.

The National Federation of Independent Business’s optimism index decreased 5.6 points to 87.5, the lowest reading since March 2010, from 93.1 in October. It was the biggest drop in monthly records going back to 1986 as eight of the measure’s 10 components fell, the Washington-based group said.

The election that returned President Barack Obama to office and left congress split between a Democratic-controlled Senate and a House led by Republicans may have raised concern that a deal to avert automatic spending cuts and tax increases set to take effect in January will be difficult to achieve. The survey showed Superstorm Sandy had little influence on the index.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

The election “created much uncertainty among business owners as to the future direction of economic policy and the economy,” William Dunkelberg, the group’s chief economist, said in a statement. “Apparently, the level of uncertainty was not resolved in a way that was supportive of many small business owners.”

Last month’s drop exceeded the 5.4-point decrease seen in October 2008 in the aftermath of the collapse of Lehman Brothers Holdings Inc., and the 5.2-point fall in September 2001 following the terrorist attacks in the U.S.

The net share of businesses projecting conditions will improve six months from now plunged 37 points to minus 35 percent, the lowest reading in data going back to 1999, Tuesday’s report showed.
Sales Outlook

The respondents’ sales-outlook measure fell eight points to minus 5 percent, and the proportion planning to make capital investments in the next three to six months decreased three points to 19 percent.

The labor-market components of the report were the only two that showed gains. The index of those planning to create jobs rose 1 point to 5 percent, and those finding it difficult to fill openings also climbed 1 point to 17 percent, indicating the jobless rate may keep falling.

Payrolls grew by a greater-than-forecast 146,000 in November, and the unemployment rate unexpectedly fell to an almost four-year low of 7.7 percent, the Labor Department reported last week.

The survey’s net figures are calculated by subtracting the percent of business owners giving a negative answer from those with a positive response and adjusting the results for seasonal variations.
Sandy’s Influence

The survey also tried to gauge the impact of Sandy by eliminating the responses from owners in states most affected by the worst Atlantic storm to ever hit the U.S.

“These data suggest that the decline in optimism was not related to Sandy per se, as sentiment fell everywhere,” Dunkelberg said in the statement.

Additionally, the figures called into question the Labor Department’s statement last week that the storm “did not substantively impact” their data. Reports of changes in employment were 8 points worse in the Sandy-affected region than in the rest of the country, the NFIB report found.

The small-business index is the second measure to suggest confidence is waning as lawmakers try to hammer out a compromise that will prevent more than $600 billion in tax increases and government spending cuts from taking effect next year. The Thomson Reuters/University of Michigan preliminary consumer sentiment index decreased in December by the most in more than a year to reach a four-month low, a report showed last week.

The NFIB report was based on a survey of 733 small-business owners through Nov. 30. Small companies represent more than 99 percent of all U.S. employers, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise with no more than 500 employees.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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