Small-Company Optimism Falls in March

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WASHINGTON (TheStreet) -- Small-business optimism fell to its lowest level in five months, hurt by weak sales and shrinking profit, according to a survey by the National Federation of Independent Business.

The NFIB Small-Business Optimism index fell 2.6 points in March to 91.9, ending its five-month upward trend. Still, hiring continued to increase.

Weaker expectations for "real sales gains" and business conditions as well as a "marked deterioration" in profit fueled the decline in optimism, the NFIB says.

"It looks like everyone became more pessimistic in March," said NFIB chief economist Bill Dunkelberg. "Or, perhaps, this is a 'new normal' and we are unlikely to see the surges usually experienced at the start of a recovery. Times are different; government, with new taxes and more restrictions, is a larger drag on the small-business community. Uncertainty continues to cloud the future while the government is persistently tone-deaf to the needs of those who create jobs and wealth. Today's recession-level reading is, all in all, a real disappointment."

While the index's decline has primarily to do with business-owner expectations over the next six months, the NFIB says there are no "clear indicators" as to why they expect economic deterioration, "particularly when GDP and employment growth have maintained positive momentum."

Small-business owners are also starting to raise prices. The NFIB attributes this to inflation and the elimination of inventory excess, it says. Inflation is also on the rise. "After two years of small-business owners reporting cutting average selling prices, March continued February's trend by posting a net 9% who reported raising average selling prices," the NFIB says.

Rising energy costs are also expected to exacerbate problems for prices in the months ahead.

Hiring remains a bright spot, according to the survey. Small businesses, on average, increased hiring by 0.17 employee over the past three months, a number unchanged from February. The NFIB estimates that the number is still short of the 350,000 per month needed for the next three years to close the employment gap.

About 10% of small employers reported increasing employment an average of 3.5 employees per firm, while 14% reported reduced employment. Still, 18% plan to hire employees over the next three months, while just 6% plan to lay off workers.

The survey also found:

  • Small-business sales declined slightly, with customer activity remaining weak -- a primary concern for owners.
  • About 93% of small businesses reported that their credit needs were being met or that they were not interested in borrowing at this time, continuing a trend seen over the past few months, according to the NFIB.

"The historically high percent of owners who cite weak sales means that for many owners, investments in new equipment or new workers are not likely to 'pay back,' the NFIB says. "Lack of demand -- and not the availability of credit -- appears to be the stalemate that is holding back loan growth."

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