The small-business community exhibited an overwhelmingly negative response to the presidential election through a dramatic drop in owner confidence, reported by the National Federation of Independent Business (NFIB) Small Business Optimism Index. The NFIB said that in one of the lowest readings in survey history, the Index dropped 5.6 points, bottoming out at 87.5.
The two major events in November were the national elections and Hurricane Sandy, which devastated parts of the East Coast, NFIB said in its analysis. "To disentangle these, the results for the states impacted by Sandy were excluded from the computation for comparison. When separating the hurricane-impacted states from the remainder, the data makes clear that the election was the primary cause of the decline in owner optimism."
“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,” said NFIB chief economist Bill Dunkelberg.
“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?” he asked.
The most significant factor impacting the decline in optimism is the expectation that future business conditions will be worse than current ones, NFIB reports. The net percent of owners expecting better business conditions in six months fell 37 points to a net negative 35 percent.
In October, the percent of owners who said they were uncertain as to whether business conditions would be better or worse in six months hit a record low of 23 percent. 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.
In the history of the monthly Index, only seven readings were lower, all but one in the last few months of 2008 and early 2009, the depths of the last recession. Prior to 1986 (when the survey was conducted on a quarterly basis), there were just two readings lower, 1975Q1 and 1980Q2.
Other highlights of the NFIB November’s Optimism Index include:
The most significant factor impacting the decline in optimism is the expectation that future business conditions will be worse than current ones, NFIB said. The net percent of owners expecting better business conditions in six months fell 37 points to a net negative 35 percent. Not seasonally adjusted, 9 percent expect an improvement in business conditions (down 5 points), and 49 percent expect deterioration (up 30 points). Twenty-three percent reported “poor sales” as their top business problem, up 1 point.
Overall, NFIB said, this is a poisonous climate for investment and expansion. Twenty-three (23) percent of owners still cite weak sales as their top business problem; this is historically high but down from the record 34 percent reading last reached in March 2010.
The net percent of owners expecting higher real sales fell 8 points to a negative five percent of all owners (seasonally adjusted), 17 points below the 2012 high of net 12 percent reached in February. Not seasonally adjusted, 19 percent expect improvement over the next three months (down 6 points) and 43 percent expect declines (up 9 points).
The percent of owners planning capital outlays in the next three to six months fell 3 points to 19 percent. Six percent of owners characterized the current period as a good time to expand facilities (down 1). This compares to 14 percent of owners who felt positive about expansion in September 2007. The NFIB report is based on the responses of 733 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of November.
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