Small Business Confidence Plunges With Politicians at the Wheel

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With events like superstorm Sandy and the national elections recently taking place, pessimism among small business owners reached one of its worst levels in recorded history. However, one of the events clearly had a stronger impact.

The National Federation of Independent Business, the leading nonprofit small business association representing small and independent businesses, said its Small Business Optimism Index plunged 5.6 points in November to 87.5. Since the organization started keeping track of the monthly index in 1986, only seven readings were lower, all but one in the last few months of 2008 and early 2009. Prior to 1986, when the survey was conducted on a quarterly basis, only two readings were lower.

The net percent of owners expecting better business conditions in six months dropped 37 points to a net negative 35 percent. On a non-seasonally adjusted basis, only 9 percent expect an improvement in business conditions, down 5 points form the prior month. Many owners who were undecided in October on whether business conditions would be better or worse in six months clearly shifted to the negative side in November, with almost half of those participants now expecting business conditions to be worse in six months.

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Although many poor economic reports are being blamed on Sandy, the superstorm had no significant impact when the Index components were calculated excluding responses from states in the Northeastern United States. Positive responses from Sandy victims showed a net decline of 64 percent, compared to 67 percent drop among owners in the rest of the country. Instead, the lost of confidence is coming from the national elections and Washington’s path towards the ‘fiscal cliff.’

Bill Dunkelberg, chief economist at the NFIB, explains, “Something bad happened in November—and based on the NFIB survey data, it wasn’t merely hurricane Sandy. The storm had a significant impact on the economy, no doubt, but it is very clear that a stunning number of owners who expect worse business conditions in six months had far more to do with the decline in small business confidence. Nearly half of owners are now certain that things will be worse next year than they are now. Washington does not have the needs of small business in mind. Between the looming ‘fiscal cliff,’ the promise of higher healthcare costs and the endless onslaught of new regulations, owners have found themselves in a state of pessimism. We are forced to ask: is this the new normal?”

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