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Small Business Confidence Retreats After Three Months of Gains

Rea Estakhrian | Lifesize | Getty Images

Small-business owners' confidence fell in March — halting a three-month winning streak, as entrepreneurs still aren't feeling optimistic about business or making substantial hiring plans.

That's the finding of a monthly survey by the National Federation of Independent Business. The group said Tuesday that its small-business optimism index edged down 1.3 points to 89.5 from 90.8 points in February.

"Virtually no owners think the current period is a good time to expand," said NFIB chief economist Bill Dunkelberg in a prepared statement. Plus, "over 75 percent think that business conditions in 6 months will be no better or worse than they currently are," he said.

Although housing and the energy sectors are forecast to add jobs, Main Street collectively has no plans to create new employment in the coming months, according to the monthly sentiment report.

End of 3-Month Run

The sentiment reading had ticked higher in December, January and February. But to describe that as a " 'run' is an exaggeration," Dunkelberg said.

Bottom line: As the recovery tries to gain traction, there may be only modest support from new Main Street jobs—a traditional driver of past recoveries.

Job Creation Tumbles

Plans to create small-business jobs tumbled in March, falling 4 points to a net zero percent of small employers, who plan to increase total employment, according to NFIB data.

(Read more: 'Slow Crawl' to Prosperity as Small Business Hiring 'Dives')

Turns out what's happening in the broader U.S. economy—an anemic employment picture—is playing out among mom and pops. Private sector job creation was considerably less than forecast for March. That report was released jointly by ADP and Moody's Analytics last Wednesday.

The report was a preview to Friday's nonfarm payrolls report, also weak. Job creation slowed to a crawl during March, with the U.S. economy adding just 88,000 positions though the unemployment rate fell to 7.6 percent. The number was a sharp decline from February's upwardly revised 268,000.

(Read more: US Job Creation Plunges, but Rate Drops to 7.6%)

"Overall, it appears that there will be little growth coming from the small business half of the economy and as the world economy slows, maybe even less from big business," Dunkelberg said.

(Read more: 'Slow Crawl' to Prosperity as Small Business Hiring 'Dives')

American Entrepreneurship at Risk?

A factor in the jobs drag is mandatory federal spending cuts. "One reason is the sequester. I think that will start to kick in," Moody's economist Mark Zandi said last week on CNBC. "I think that will start to show up in jobs in the next few months. The other thing is health care." (Read more: Sequestration — CNBC Explains)

For employers, there has been a heavy cloud of uncertainty about anticipated spending cuts and costs associated with Obamacare that go into effect in 2014.

But unlike larger private sector businesses, smaller employers usually don't have buffers such as large cash reserves to ride out federal budget cuts. Most smaller firms also can't quickly pivot business strategies to ride out a rough patch. So their strategy has largely been staying in a holding pattern—including hiring decisions.

Fred Deluca, the founder of privately held Subway Restaurants, said the government is simply out of touch with small-business owners. Policies including Obamacare discourage entrepreneurship and the American dream of owning your own business, Deluca told CNBC's "Squawk on the Street" in February.

Added NFIB's Dunkelberg, "For the sector that produces half the private GDP and employs half the private sector workforce—the fact that they are not growing, not hiring, not borrowing and not expanding like they should be, is evidence enough that uncertainty is slowing the economy."

By CNBC's Heesun Wee; Follow her on Twitter @heesunwee

(Read more: Subway 'Wouldn't Exist' If Started Today Due to Regulations: Founder Deluca)

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