Behind the Numbers: What’s Causing Decreasing Small Business Optimism?

Date: March 11, 2016

Political uncertainty, not surprisingly, is weighing down owners—but it’s not the only thing.

Small business owners aren’t convinced the economy is booming, according to NFIB’s most recent Small Business Economic Trends report. The index fell one point from January to a two-year low of 92.9. 

NFIB’s Chief Economist Bill Dunkelberg blames the decrease in optimism on the Federal Reserve’s monetary policy and an uncertain political climate. “Fed policy communications are very disconcerting, giving an impression that the economy is weak,” Dunkelberg wrote in the report. “All of this generates uncertainty, the enemy of spending and hiring behavior that would move the economy forward at a faster pace.”


Reuters reported that the decline in business confidence also has to do with workers’ rising wages and shrinking profit margins for many small business owners. 

Future sales expectations have also hindered business owners in the first quarter of 2016, according to MarketWatch. Bleaker sales expectations “translated to fewer business owners increasing inventories,” the financial news organization reported. “At the same time, owners reined in capital spending and signaled increasing caution over budget plans.” 

Business owners cited “economic conditions” and a chaotic “political climate” as two of their top concerns in NFIB’s survey, and these factors have also contributed to depleted optimism among business owners. Too many government regulations—particularly from the Affordable Care Act—is another element weighing down small business, according to Investor’s Business Daily.

Geography is also playing a critical role in determining which owners feel confident and which are cautious, according to a Fox Business article. “If you’re running a pizza shop, and you’re located in Washington D.C., San Francisco, New York City, Miami or other parts of the country that are growing and doing well—then you’re doing well,” Fox reported. “If you’re an owner located in parts of North Dakota, Texas, Louisiana or sections of Florida, then the past couple of years haven’t been great.”

These reports indicate that despite some encouraging numbers such as falling unemployment and increased consumer spending, small business owners expect a slow few months while they determine the safest course of action for their companies.

Here’s more of what people have been saying about the report on Twitter:

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