Small-business owner confidence declines

Optimism among small-business owners dropped last month to a 17-year low as companies said they expected business conditions to worsen in the next six months.

The National Federation of Independent Business confidence index fell 2.8 percentage points to 91.8, according to the Washington-based group. Eight of the 10 components making up the measure fell.

“The index delivered a recession signal, but it takes more than a quarter to validate,” the group said. “The index has been sliding since it peaked in 2004, typical of an expansion that gets tired, as has the overall level of economic activity. Perhaps the economy will slide, rather than plunge, into a recession.”

The last time the index was this low or lower was in January 1991. At that time, the measures for job creation plans and openings were lower than they are now and those for capital spending and inventory investment were higher, suggesting the current weakening in the economy may be less dramatic than then, the group said.

Among components of the index that pulled the reading down, the net proportion of owners expecting a better economy fell 12 percentage points to minus 22% in January. The net figures are calculated by subtracting the percent of business owners giving a negative answer from those giving a positive response.

Respondents scaled back expectations for sales and plans for spending and hiring, putting pressure on the economy.

The proportion of owners planning to make capital expenditures in coming months fell 5 points to 25%. Those expecting to create jobs fell to 9%, from 11% in November. In January 1991, those measures were 27 and 2, respectively.

The share of owners expecting higher real sales in six months fell 2 percentage points to 4%. The reading on those experiencing an increase in profits fell 7 percentage points to a negative 27%. The share of companies planning to increase inventories fell 1 percentage point to minus 4%. Those saying it’s a good time to expand fell 5 points to 9%.

The U.S. economy expanded at a 0.6% annual pace in the fourth quarter, matching the slowest pace in more than four years.

The two measures that gained in the report were a gauge of whether job openings are hard to fill, which rose to 24% from 21%, and expectations of easier credit conditions, which increased to negative 9%.

The survey was based on 1,845 respondents. The typical National Federation member employs about five people and reports gross sales of about $350,000 a year, according to the group’s website.