Small Business Owners Now Less Optimistic about Future Prospects

The improvements in the economy over the last several months tended to have a positive impact on the beliefs that small business owners had for the future of their companies, but that trend came to an end in March.

The upticks in positive outlooks held by small business owners in each of the last three months were halted by a slight downturn in the final month of the year's first quarter, according to the latest Index of Small Business Optimism issued monthly by the National Federation of Independent Businesses. Overall, the index slipped to a rating of 89.5 from the previous month's 90.8, once again bringing it below the average of 90.7 observed since the end of the recession in July 2009. This is because, in the March survey, only two of the 10 factors considered in the index saw increases in confidence.

While earning trends rose three points, and expectations of good credit conditions ticked up by two, six of the 10 saw declines, some of which were rather significant, the report said. This was led by a five-point decline in expectations of higher real sales. However, plans to increase either employment or inventory both fell by four points, and there was a three-point drop in current job openings as a result. Current inventory and the belief that now is a good time to expand fell by two and one points, respectively, while plans to make outlays of capital and expectations of economic improvement both held steady month-over-month.

"After another false start, small-business confidence has sputtered and stalled again," said NFIB chief economist Bill 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. Virtually no owners think the current period is a good time to expand, because they simply don't know what the future holds. So why invest? And with the lack of any sustainable fiscal policy or a federal budget, no one's banking that Washington will be at forefront of any meaningful change. Overall, it appears that there will be little growth coming from the small business half of the economy; as the world economy slows, even big business may suffer."

Potential positive signs still loom
In all, while more than 75 percent of those polled said they expect their business conditions to either stay the same or worsen over the next six months, and although small businesses overall say they will cut hiring, this isn't true for all industries, the report said. Housing and energy seem to have plans to expand hiring during this time period, and now, just 3 percent of those polled said the availability of credit is their largest concern.

Because the economy is still expanding, albeit at a slow pace, small business owners may grow frustrated with their companies' progress. However, taking the time to assess all conditions in the marketplace and properly plan for not only the immediate future, but also their prospects further on down the road. One concern that many may have these days is the high and growing cost of insurance premiums that are often a necessary part of owning a small business. Policies including workers' compensation insurance and liability insurance can grow expensive quickly, and significantly endanger any company's bottom line if the costs associated with them are now planned for carefully.