Small-Business Confidence Drops After Six Months of Gains: NFIB

Job creation in March was the bright spot in this month's index, but businesses are having trouble finding qualified workers.

Six monthly gains were reversed in March, as the National Federation of Independent Business Small-Business Optimism Index fell by nearly 2 points, settling at 92.5.

Despite a promising start to the year, nine of 10 index components dropped last month, most notably hiring plans and expected real sales growth, each taking a significant dive, in spite of owners reporting the largest increase in new jobs per firm in a year. The report is based on the responses of 757 randomly sampled small businesses in NFIB€™s membership, surveyed throughout March.

The March survey results ended what appeared to be a steady, albeit slow, trend of improvement for the small-business sector of the economy. The proportion of owners reporting inflation as their top business problem is now at 9 percent, an increase from 6 percent in January. Reports of increases in average selling prices are rising and net 21 percent of the owners plan to raise their selling prices in the coming months.

Job creation in March was the bright spot in the month€™s index; the net change in employment per firm, seasonally adjusted, was 0.22, far above January€™s €œ0€ reading. Seasonally adjusted, 10 percent of the owners added an average of 3.1 workers per firm over the past few months, and 13 percent reduced employment an average of 2.1 workers per firm. The remaining 77 percent of owners made no net change in employment. Forty-four percent of owners hired or tried to hire in the last three months and 32 percent reported few or no qualified applicants for positions.

The ability to find qualified applicants for available jobs continues to be a problem for many small-business owners, according to survey results. The percent of owners reporting hard-to-fill job openings fell 2 points to 15 percent, the second monthly decline since reaching 18 percent in January. The net percent of owners planning to create new jobs is in its fourth month of decline. March€™s net €œ0€ reading for planned job creation was 4 points lower than February's and 7 points lower than November 2011. The reports of actual hiring over the past few months are the best since February 2011, making March the best job-creation month in a year. However, the decline in the percentage of owners with a hard-to-fill opening and in the percentage of owners planning to increase the number of workers employed indicates growing weakness in the job market and portends a rising unemployment rate.

€œMarch came in like a lion, with Main Street seeing significant job growth in March, but it appears to have gone out like a lamb and with no cheer in the forward-looking labor market indicators. What could have been a trend in job growth is more likely a blip,€ NFIB chief economist Bill Dunkelberg said in a statement. €œAnd what looked like the start of a recovery in profits fizzled out. The mood of owners is subdued; they just can€™t seem to shake off the uncertainties out there, and confidence that the management team in Washington can deal with this effectively is flagging. What we saw in March is painfully familiar€”this was the same pattern of growth followed by months of decline from 2011. History appears to be repeating itself€”and not in a good way."

More details on the NFIB study are available here.