Small business owner confidence continued to soften last month, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index fell by 0.9 points to 95.0 in January, the third monthly decline in a row and the lowest reading since May of last year. Only four of the ten main components that make up the sentiment gauge deteriorated in January, suggesting that the weakness was at least not nearly as broad as what was seen in the previous month. However, the biggest detractors remained surveyed owners’ outlooks for inflation-adjusted profits and the overall economy. This is a continuation (and worsening) of the trends we pointed out in November related in large part to small business owners’ general frustration with ongoing activity restrictions, as well as concerns regarding the changes that may result from the recent regime shift in Washington.
The report’s authors added that “Important activities like capital spending remain depressed. … With the new administration rolling out its policies, many important factors (taxes, government payments, etc.) are still unclear. The administration is moving quickly, so owners will have a much clearer picture of the future business environment soon.” In terms of small business employment trends, though, things actually improved in January. For example, on net firms stopped reducing staff last month for the first time since March, and complaints about a lack of qualified job applicants fell to a 5-month low. The latter was likely helped by the jump in worker compensation that occurred last month, and a greater number of surveyed owners cited plans for additional wage increases in the months ahead. A lot of these dynamics are supported by the latest job openings and labor turnover survey (JOLTS) from the Bureau of Labor Statistics, also released this week. The ratio of quits to layoffs and discharges, for instance, is already back in line with the pre-COVID average and therefore signals an encouraging rebound in Americans’ willingness to give up their current job security for better employment prospects. Moreover, the private-sector quits rate is now up to 2.6 percent, just 0.1 percentage points below the pre-pandemic high and yet another indication that the U.S. labor market is ready to run once the pandemic is less of a concern and the economy can fully reopen.
Sources: Econoday, NFIB, U.S. DoL, FRBSL