National Federation of Independent Business Small Business Optimism index

The National Federation of Independent Business Index of Small Business Optimism lost 1.3 points in February, falling back to the December reading of 88.0, only 7 points higher than the survey's second-lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980:2). The persistence of Index readings below 90 is unprecedented in survey history.

"News about the economy is for the most part improving, and therefore is an unlikely source of small business uncertainty and declining optimism. The Washington, D.C. agenda, on the other hand, remains a nightmare for small business owners and continues to be a real factor in small business owners not expecting business conditions to improve," said Bill Dunkelberg, NFIB's chief economist.

Optimism Components Net % Change
PLAN TO INCREASE EMPLOYMENT -1% 0 PLAN TO INCREASE CAP. OUTLAYS* 20% 0 PLAN TO INCREASE INVENTORIES -7% -3 EXPECT ECONOMY TO IMPROVE -9% -10 EXPECT HIGHER REAL SALES 0% -3 CURRENT INVENTORY SATISFACTION -1% 0 CURRENT JOB OPENINGS* 11% +1 EXPECTED CREDIT CONDITIONS -14% -1 NOW A GOOD TIME TO EXPAND* 4% -1 EARNINGS TRENDS -39% +3

"Net job creation will appear in the coming months, but the gains will be painfully slow with timid consumer spending, especially in the service sector," said Dunkelberg.

Owners complained that poor sales are their top problem, and there is no need to hire with no new customers. In this sales environment, it is hard for workers to earn their pay. Owners cannot pay workers more than the value they add to the firm.

This is why a jobs tax credit will do little to increase employment. No one can pay $40,000 for a worker to get a $5,000 tax credit unless that worker can add at least $35,000 in revenue to cover the cost of hiring. And as long as the tax credit issue is alive in Congress and not passed, employers that were ready to hire (13 percent plan to hire) will wait until they can qualify for the credit, delaying much needed gains in employment. (See grandpa post 3/4/10: House of Representatives Passes $15 BILLION “jobs” bill)

Complete text of NFIB Release