Small-business optimism fades as sales stay weak

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Optimism among U.S. small businesses dropped in March as company owners turned more dour about the economic outlook, a new report shows.

Many firms continued to complain about weak sales despite the overall economy’s growth. Even so, many also say they plan to raise prices -- a potential warning sign about inflation trends.

The National Federation of Independent Business said its optimism index (charted, at left) slid to 91.9 in March after reaching a post-recession high of 94.5 in February. Economists polled by Bloomberg News had expected the index to rise to 95.0 last month.

The NFIB survey has been one of the most disappointing economic indicators since the recession officially ended in mid-2009. The optimism index, which peaked at 107.7 in November 2004, has rebounded from a low of 81.0 in March 2009 but remains mired at levels consistent with recession conditions.

NFIB, which surveyed 811 firms last month, said optimism was clipped by “weaker expectations for real sales gains and business conditions and a marked deterioration in profit trends. The decline in the percent of owners expecting higher real sales and better business conditions in six months alone account for 76% of the decline in the index.”

Customer demand “remains weak and remains a primary concern for many in the small-business community,” NFIB said. “Small businesses did not appear to have benefited much from the modest recent gains in consumer spending.”

The net number of businesses expecting to hire workers over the next three months slipped from February, though the number of companies planning capital expenditures rose slightly.
“Prospects are still uncertain enough to discourage any but the most profitable and promising investments,” NFIB said.

But after working down their inventories, more companies say they’re expecting to boost prices. “The [inventory] ‘fire sale’ is over and profits are badly in need of some price support,” NFIB said.

A net 24% of companies said they planned to raise prices to customers, the highest level in 30 months. That won’t sit well with the Federal Reserve, which has been insisting that inflation isn’t likely to rise significantly in part because many businesses don’t have pricing power.

-- Tom Petruno