The small business optimism index fell 0.6 points in March to 104.7, a slight decline that holds on to the bulk of strong post-election gains recorded in November and December, when the index surged to the highest reading since December 2014. The small decrease was in line with expectations and indicates the continuation of a very high level of optimism for small business owners.
Of the 10 components of the index, 6 posted declines, 2 were unchanged, and 2 increased. But the declines occurred mostly from very high levels, with the readings remaining strong, and the registered increases came in the important areas of capital investment and job creation. Plans to increase capital outlays thus rose 3 points to 29 and plans to increase employment were up 1 point to 16.
The largest decrease among the optimism components was registered by expectations of higher real sales, which fell 8 points to 18. And earnings trends confirmed the low level of optimism regarding actual business performance, falling 4 points to a minus 9, making it the weakest of the 10 components. Inventory components also fell back and remained among the weakest of the index, with plans to increase inventories falling 1 point to 2 and current inventories dropping 3 points further into negative territory to a minus 5. Current job openings shed 2 points but remained at a very strong 30.
Though expectations that the economy will improve fell back by 1 point to 46, the component remains the strongest of the index, indicating that business owners remain extremely optimistic about the economy in general. In a confirmation of this, a net 22 percent of small business owners surveyed believe that now is a good time to expand.
NFIB pointed out, however, that most of the March data for the survey was collected before Congress failed to pass a bill repealing and replacing Obamacare, which had been one of the key points that together with expectations of other deregulatory measures made small business owners so optimistic in the post-election period. NFIB also noted that the uncertainty index hit 93, the second highest level in the survey's history, indicating that small business owners are having a difficult time anticipating factors that affect their businesses, particularly government policy. These caveats highlight the fragility of the optimism recorded by the survey in March, especially due to its dependence on promises of small-business friendly policy changes that remain unfulfilled.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
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