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A mixture of elements, including the superstorm Hurricane Sandy and the presidential election, contributed to a massive drop in small business confidence in November, according to the latest National Federation of Independent Business Small Business Optimism Index.
The most significant factor impacting the decline in optimism is the expectation that future business conditions will be worse than current ones. The Index dropped 5.6 points, bottoming out at 87.5, one of the lowest readings in the survey’s history. Only seven readings were lower in the Index’s history, all but one in the last few months of 2008 and early 2009, in the depths of the last recession.
Small business owners’ plans to increase inventories and employment fell, as did optimism over expected credit conditions, earnings trends and expectations for improved retail sales. Many of those who were uncertain about the economy in October became decidedly negative in November; 49 percent of the owners now expect business conditions to be worse in six months, while 11 percent still express uncertainty about the future.
“Something bad happened in November—and based on the NFIB survey data, it wasn’t merely Hurricane Sandy. The storm had a significant impact on the economy, no doubt, but it is very clear that a stunning number of owners who expect worse business conditions in six months had far more to do with the decline in small-business confidence,” NFIB chief economist Bill Dunkelberg said in a statement. “Nearly half of owners are now certain that things will be worse next year than they are now. Washington does not have the needs of small business in mind. Between the looming ‘fiscal cliff,’ the promise of higher health-care costs and the endless onslaught of new regulations, owners have found themselves in a state of pessimism. We are forced to ask: is this the new normal?”
Reports of actual employment change were 8 points worse in the Sandy states. Many firms could not open for business and face an uncertain future, leaving plans to reduce employment 7 points higher there than in the rest of the United States, and one of the storm’s major impacts on the thousands of small firms that were shut down along the East Coast was a significant reduction in hiring.
In addition, job openings in those states were fewer in number and, looking ahead to the next few months, more owners in those states said they planned to reduce employment than in the rest of the country, although the same percentage planned to create new jobs. “Many firms could not open for business and face an uncertain future, leaving plans to reduce employment 7 points higher there than in the rest of the U.S,” the report said.
Overall, the most significant factor impacting the decline in optimism is the expectation that future business conditions will be worse than current ones. Nearly a quarter (23 percent) reported “poor sales” as their top business problem. “Not seasonally adjusted, 9 percent expect an improvement in business conditions (down 5 points), and 49 percent expect deterioration,” the report said. “Overall, this is a poisonous climate for investment and expansion.”