NFIB: Small business optimism slipping as a result of economic uncertainty; hiring and investment remain strong.

Economic uncertainty has begun to erode small business owners’ expectations for the future, although their business operations remain strong, according to the latest NFIB Small Business Optimism Index.

The NFIB Small Business Optimism Index slipped 3.2 points in January, as owners continued hiring and investing, but expressed rising concern about future economic growth. The 101.2 reading, the lowest since the weeks leading up to the 2016 elections, remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability.

Political uncertainty translates to economic uncertainty, says NFIB leadership.

Business operations are still very strong, but small business owners’ expectations about the future are shaky,” said NFIB President and CEO Juanita D. Duggan. “One thing small businesses make clear to us is their dislike for uncertainty, and while they are continuing to create jobs and increase compensation at a frenetic pace, the political climate is affecting how they view the future.”

The full report makes clear that despite emerging concerns small business owners continued to hire and invest in January.

Job creation was solid in January with a net addition of 0.33 workers per firm (including those making no change in employment), up from 0.25 in December, affirming the outsized job number reported by the Department of Labor and the best reading since July 2018….

Sixty percent reported capital outlays, down 1 point. Of those making expenditures, 43 percent reported spending on new equipment (up 1 point), 26 percent acquired vehicles (up 1 point), and 16 percent improved or expanded facilities (up 1 point). Seven percent acquired new buildings or land for expansion (up 1 point) and 15 percent spent money for new fixtures and furniture (unchanged). From the start of the recovery in mid-2009 to the end of 2016, an average of 54 percent of small businesses made any capital expenditure, the driving force behind productivity improvements. But since 2016, reports of expenditures have averaged 60 percent.

And, again, finding skilled workers remains a major challenge.

Fifty-six percent reported hiring or trying to hire (down 4 points), but 49 percent (88 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill (down 2 points). Twenty-three percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, unchanged from last month and 2 points below the record high. Thirty-five percent of all owners reported job openings they could not fill in the current period, down 4 points from December’s record high.

Although the numbers are not alarming – still above average – the report indicates reason for concern. As we noted in our newsletter yesterday, Congressional action on trade and infrastructure would help reduce the current uncertainty, building a foundation for more consistent economic growth in 2019.