Small Business Optimism Index Hits All-Time Low


A gauge of small business optimism in the United States sunk in March to a 22-year low, as small business owners clamped down on plans to create new jobs and expand business operations, a survey released Tuesday showed.

The index of small business optimism fell 3.3 points in March to 89.6, the lowest monthly reading since the surveys began in 1986, the National Federation of Independent Business said.

"We are seeing recession readings," said NFIB Chief Economist William Dunkelberg in a statement.

The decline was driven by a sour outlook for business conditions and real sales growth, accounting for half the decline in the index, the group said. Weaker plans to create new jobs accounted for 21 percent of the decline.

During the next three months, 3 percent of the owners surveyed plan to create new jobs, down 8 points from February and the lowest reading since March 2003, NFIB said.

"Reductions in employment from layoffs and terminations eased from February, but the sharp decline in job creation plans does not bode well for economic growth in the near term," Dunkelberg said.

As for credit conditions, the survey's March reading indicates that more owners expect credit to tighten in spite of the Fed's expansionary polices, NFIB said.

The Fed has cut interest rates by 3 percentage points since mid-September to its current 2.25 percent, including a relatively rare rate cut between scheduled meetings of its policy-making committee.

"It is clear that lower rates aren't inducing small business owners to run out and borrow money to make more capital outlays, expand facilities, or add to inventories," Dunkleberg said.

And a slowing economy has not deterred firms from raising prices, the group said.

The number of firms planning to raise prices rose 7 percentage points to 29 percent.

Twelve percent of owners surveyed cited inflation as their No. 1 problem, up 4 percentage points from February and the highest reading since the 1980s.

"The good news is that the recession fear has infected expectations more than spending plans," Dunkelberg said. This leaves open the possibility that the downturn can be modest."