Is Main Street Feeling Better About the Economy?

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Amid a wide range of uncertainty and an overall sluggish economy, small businesses located on Main Street are still skeptical about their future. In fact, small business optimism indicates sub-par growth and recession conditions.

The National Federation of Independent Business, the leading nonprofit small business association representing small and independent businesses, reported that its Small Business Optimism Index dropped 2.7 points from January to 91.4 in February, breaking a three-month streak of improvement. At the beginning of 2013, the index posted a reading of only 88.9. The pre-recession average of the index is 100.

“Uncertainty is a major cause of the Index’s dip. Lacking any progress in Washington and facing continued unknowns with the healthcare law, the EPA, the minimum wage, tax reform, and more, it is no surprise that the Small Business Optimism Index fell, reversing a few months of modest gains,” said NFIB chief economist Bill Dunkelberg. “As long as uncertainty remains high, owners will remain cautious when it comes to increasing inventory. Business owners aren’t going to bet their money on a future they cannot see clearly.”

Adding to the weak sentiment, only one of the 10 index components were positive, while six were negative. Small businesses did not experience any changes in their current job openings, credit conditions, or earnings trends. Plans to make capital outlays was the only improved component, but only gained one point. Meanwhile, businesses expecting the economy to improve plunged 8 points.

Small businesses are still most concerned with government regulation and taxes, with both remaining unchanged from a year earlier. In fact, 21 percent of businesses say government red tape is their top problem, while 19 percent say taxes are the main problem. Sixteen percent are most concerned about sales.

“The economy is not doing well and little is happening in Washington that would lead owners to think otherwise,” added Dunkelberg. “Even the Federal Reserve’s guidance is for a weak economy, that’s what owners read and they are the experts (and policy makers.) All policy is focused on the election, pandering to special interests, not the interests of the ‘middle class’ (most of us), which simply wants to see better economic growth and serious job creation (along with improving compensation.) Consumer sentiment is equally morose for this stage of a ‘recovery.’ Only 1 in 10 consumers think government policy is good.”

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