Small business optimism falls in January

NFIB Chief Economist Bill Dunkelberg compares small business enthusiasm from December to January.

NFIB: January Small-Business Optimism Index Falls to 97.9

By Features Dow Jones Newswires

Optimism among small business owners fell back a bit in January, according to a report released Tuesday. Job growth in the sector remained solid.

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The National Federation of Independent Business's small-business optimism index dropped to 97.9 in January after it increased to 100.4 in December, which was the index's highest point since October 2006.

Economists surveyed by the Wall Street Journal expected the index to edge up to 101.0 in January.

The largest drag in January came from expectations for business conditions in the next six months. The subindex fell 12 percentage points to a 0% reading. Real sales expectations were down 4 points to 16% and the earnings trends subindex fell 4 points to -19%.

"Owners are less optimistic about sales growth and business conditions, but plan to keep creating jobs and spending on inventory and equipment at the best levels seen in the expansion," according to the report.

The most positive news from the small business sector continued to be the demand for labor. Last week, the NFIB reported that small businesses added an average of 0.16 employee per firm in the three months ended in January, after December's reading of 0.20. Both are "historically very high numbers," the trade group said. Looking ahead, the job creation subindex slipped only 1 point in January, standing at a historically high 14%.

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"Job creation is the core of growth and the small business sector appears to have shifted to second gear, boring but steady," the NFIB said.

Hiring might be higher if not for the difficulty in finding skilled workers. The January survey found 26% of small business owners reported having job openings they cannot fill right now, up from 25% saying that in December.

The need to find the right workers is causing more companies to lift wages. "The% of owners reporting higher worker compensation held at 25%, the best reading since late in 2007," The NFIB said.

At the same time, however, pricing power remains weak. According to Tuesday's report, on a seasonally adjusted net basis, only 3% of owners reported raising selling prices, down from 4% in December and "a very "tame" reading."

"Reports of price reductions are still quite high, so perhaps compensation increases are "funded" by energy cost savings as well as reduced profitability," the NFIB said.

Small firms also reported a solid level of capital spending. According to the January survey, 59% of owners report making capital outlays recently, the second strongest reading since the fourth quarter of 2007.