by Calculated Risk on 1/11/2011 07:30:00 AM

From National Federation of Independent Business (NFIB): Small Business Optimism declines slightly in December

The National Federation of Independent Business Index of Small Business Optimism lost 0.6 points in December, dropping to 92.6, disappointing those who were anticipating a rebound that might signify more growth in the small business sector. Weak sales remains the top problem, stagnating hiring and spending on capital projects. All of which are sidelining the small business sector from a recovery. This marks the 36th month of Index readings in the recession level.

"The hope for a pick-up in the small business sector did not materialize, but new weaknesses did not appear either," said William C. Dunkelberg, chief economist for the National Federation of Independent Business. "More owners expect their real sales volumes to rise in the coming months, increasing the odds that more hiring and inventory investments will take place. Overall, owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects."

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in new window.

The first graph shows the small business optimism index since 1986. The index decreased slightly to 92.6 in December from 93.2 in November.

According to the NFIB: "This marks the 36th month of Index readings in the recession level".

The second graph shows the net hiring plans over the next three months.

Hiring plans have turned positive again and are at the highest level since mid-2008. According to NFIB: "Over the next three months, 10 percent plan to increase employment (up one point), and nine percent plan to reduce it (down three points), yielding a seasonally adjusted netsix percent of owners planning to create new jobs, a two point gain from December and the best reading in 27 months."

And the third graph shows the percent of small businesses saying "poor sales" is their biggest problem.

Usually small business owners complain about taxes and regulations (that usually means business is good!), but now their self reported biggest problem is lack of demand.

The decline this month was small, and in general this index has been improving - but very slowly.