Small Business Optimism on Roller Coaster Ride: Survey

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Businessman with crystal ball

Small business owners were more optimistic in April, but compared to a year ago they haven’t really moved the needle forward on feeling more confident about the economy.

While the National Federation of Independent Business’ Small Business Optimism Index rose two points in April to 94.5, the index is back to the same level it had been in February 2011.

“It’s positive from last month,” said NFIB chief economist William Dunkelberg. “But we’re in the same place as a year ago, so a whole year has gone by and we don’t go anywhere.”

Looked at another way, there are signs that confidence in the economy is slowly being restored.

The index, which surveyed 1,817 members of the NFIB about their perceptions of the economy and how it effects their businesses, found that there was increased optimism around job creation and capital spending plans. The percent of business owners that reported a positive quarterly sales trend was the highest since April 2007. In addition, there was an 11 point gain in reported profits, the best since September 2007.

These numbers are up after a weak March, in what continues to be an up and down recovery for small businesses.

“If you focus on earnings and sales numbers, it’s good news. This is something we haven’t seen improving for a long time,” said Dunkelberg. “If you’re making more money, you have money to do things, like hire. That could set the stage for improved optimism.”

Earnings, in fact, accounted for the largest gain in the survey.

“Reports of favorable sales trends were the best since April 2007, and are a likely cause of the improved profit reports,” said Dunkelberg in the report.

In other areas, such as capital outlays, however, indications are that while things are slowly improving, it’s “nothing to write home about,” said Dunkelberg. The Index now stands at 54 percent, far above the 44 percent in August 2010, but below the average rate of 60 percent.

“In the smallest businesses, we’re seeing improvement,” said Dunkelberg, “but it’s going on under the government’s radar. It will take a while before it registers” in the national picture, he said, pointing to the job creation number in particular. “Hopefully this time they will not deteriorate again.”

And that’s pretty much the hope for all 10 categories in the index, many of which have, over the course of the past few years, seen ups and downs.

“We keep getting these head fakes, like last year, and we’re wondering if [the index] will do it again,” said Dunkelberg, referring to March 2011, when the survey took a dip, and then continued a downward trend throughout the spring and summer, only starting to rise again last October. “Last year, it kept getting worse; this time March took a dive, then came back.”

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