Sandy, Election Downers for Small Business

In its first index since the reelection of President Obama, the National Federation of Independent Business reported a major drop in optimism among the small-business community.

November’s index, released Tuesday, saw a drop of 5.6 points overall to 87.5. The drop marks the 10th lowest overall score in the 37-year history of the optimism index.

Superstorm Sandy also had a major impact on small businesses on the East Coast in particular, so the NFIB separated the states impacted by Sandy to compare them alongside the other states. The NFIB reported that when separating the hurricane-impacted states from the rest of the country, the data proved Novembers’ election was the primary cause for the decline in optimism.

Cynthia Magnuson, senior media manager for the NFIB, said that while the group expected a drop post-election, the level‘s low came as a surprise.

“We weren’t expecting it to drop as much as it did,” Magnuson said. “Some things, like jobs, didn’t really budge. However, what changed significantly -- like expectations for growth and hiring, and outlook for business conditions in the next three months -- is what really pulled the index down to a dramatic drop.”

In fact, the most significant factor that pushed declines down was the expectation that future business conditions will be worse than current ones. The net percent of owners that believe business conditions will be better in six months fell 37 points to a negative 35%. In October, this same question brought a record low response of 23% who said they were uncertain. This same group became “decidedly negative” in the November reading, with 49% of business owners now expecting conditions to be worse in the six months, while 11% still said they are uncertain.

States that were in the path of Sandy were calculated separately by the NFIB, and overall there were few major differences between the two groups. There were net declines in positive responses of 64 points among Sandy victims and 67 percentage points among the rest of the country. Capital spending plans were higher among Sandy victims, and labor force indicators were slightly worse, the index found. The NFIB said the declines in optimism were not directly tied to Sandy for this reason.

Job creation is where states impacted by Sandy were hit hardest. Thousands of small firms shut down along the east coast, and the survey found owners in these states planned to reduce employment more than the rest of the country, although the same percentage planned to create new jobs. The average change in national employment weakened slightly to -0.04 from 0.02 workers. Reports of actual employment change were eight points worse in the Sandy states.

The index also found 23% of business owners reporting poor sales as their top problem, a historically high number. However, this is down from the record 34% reading in March 2010. The percent of business owners planning capital outlays in the next three to six months fell three points to 19%, and only 6% of business owners said now is a good time to expand.

Six percent of owners reported that all of their credit needs were not met, down two points from October, while 28% said all credit needs were met. Fifty-two percent said they explicitly did not want a loan, and only 3% reported financing as their top business problem.