Optimism among small-business owners took a tumble in March, according to a National federation of Business survey.

The NFIB Small-Business Optimism Index lost 3.5 points, falling to 98.0 (1986=100), two points below the 30-year average. While profit trends improved, inventory investment and reported sales trends remained strong (virtually unchanged from February), labor market indicators sagged and capital spending plans faded along with weaker expectations for gains in real sales.

Declines in job creation plans and job openings accounted for 30 percent of the drop in the index, weaker real sales expectations 40 percent, and the decline in the outlook for overall business conditions contributed 20 percent of the drop.

“Although the first quarter will be very strong, something spooked small-business owners in March about the future course of the economy,” said NFIB chief economist William Dunkelberg. “The decline could indicate that owners think the economy is strong, but they don’t expect it to get any better, or the economy is weak and they expect growth will slow substantially. The April survey could provide the answer.”
 
The percent of owners reporting higher average selling prices fell six points to a net 17 percent. Twenty-two percent reported higher labor compensation, down two points but well above the percent raising selling prices. The net percent of owners reporting positive earnings trends gained three points.

Seasonally adjusted, 13 percent of the owners reported increasing employment in March and 14 percent reported reductions, according to the survey. Forty-nine percent hired or tried to hire one or more workers. Eighty percent of those owners reported few or no qualified applicants for the positions they were trying to fill. Twenty-three percent had unfilled job openings, down three points. Over the next three to six months, 24 percent plan to create new jobs, while only 5 percent plan workforce reductions, yielding a seasonally adjusted net 9 percent of owners planning to create new jobs, a large decline from February – one Dunkelberg called “quite surprising.”

The frequency of reported capital outlays over the past six months rose three points to 66 percent of all firms. Forty-seven percent spent on new equipment, 27 percent acquired vehicles, and 14 percent improved or expanded their facilities. Eight percent obtained new buildings or land for expansion and 15 percent spent money for new fixtures and furniture.

Plans to make capital expenditures over the next few months declined four points to 31 percent of all firms.

JCK