Small-business optimism plummets

By Bernie Becker - 12/11/12 01:13 PM ET

Small-business optimism plummeted in the wake of last month’s election, according to a key industry index, with owners sharply more pessimistic about the future of the economy.

The National Federation of Independent Business’s optimism index fell to 87.5 in November, a drop of more than 5 points and its lowest reading since March 2010.

The 5.6-point drop, which comes just weeks before the economy is scheduled to absorb across-the-board spending cuts and tax increases that make up the "fiscal cliff," was also larger than any month-to-month decline for the index during the 2008 fiscal crisis. The index’s monthly reading, in place since 1986, has only been lower seven times — most in late 2008 and early 2009.

Bill Dunkelberg, NFIB’s chief economist, said that Hurricane Sandy did not play much of a role in the index’s drop, and the group said the election — which left divided government in place in Washington for at least the next two years — was the “primary cause of the decline.”

“Between the looming ‘fiscal cliff,’ the promise of higher health-care costs and the endless onslaught of new regulations, owners have found themselves in a state of pessimism,” Dunkelberg said in a statement. “We are forced to ask: is this the new normal?”

NFIB’s policy priorities are often aligned with Republicans — the group, for instance, was a plaintiff in the legal challenge to the Democratic healthcare overhaul.

But the small-business index’s findings are consistent with other surveys that have found growing pessimism ahead of the fiscal cliff, set to hit in January unless Congress acts.

Thomson Reuters and the University of Michigan announced recently that its preliminary consumer confidence index dropped for December, and other sectors — like manufacturing — have also seen a decline in optimism.

President Obama and congressional Republicans still face hurdles in a fiscal-cliff deal, including on whether tax rates on family incomes north of $250,000 a year should rise.

The NFIB said that it removed states affected by Sandy from this month’s index to ensure accuracy.

According to the index, owner confidence that business conditions would improve over the next half a year dropped 37 points, to -35 percent. Almost half of owners believe conditions will go south over the next six months, NFIB says.

The index also found that Hurricane Sandy caused significant reductions in hiring in states hit by the storm. The Labor Department’s most recent jobs report found the storm didn’t have a significant impact on job creation.