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Small Business Optimism Drops for First Time in Six Months

Small business optimism fell for the first time in six months in March, according to the National Federation of Independent Business (NFIB). The association's small business optimism index fell by nearly 2 points last month, down to 92.5 after February's 94.3 and six consecutive months of gains.

In its commentary, NFIB noted that the absence of a real, remarkable recovery was beginning to weigh on respondent confidence. "The March survey results were bad news, ending what promised to be steady, albeit glacially slow, improvements in the small business sector of the economy. Nothing much happened in March to make owners more optimistic about the future and that seems to be the problem, the status quo."

Continued uncertainty in various facets of the economy throughout the course of March also contributed to the drop in optimism. "Europe was quiet but somber, uneasy, as if waiting for another shoe to drop. Consumer confidence and spending remains depressed. And health care is in the Supreme Court creating more uncertainty, either way the decision goes," NFIB added.

A lackluster unemployment report last week seemed to anticipate the index's decline, as the Bureau of Labor Statistics' latest figures indicated that only 120,000 jobs were created in March, the fewest since October. "The jobs issue remains at the top of the list for most and it certainly has the attention of the politicians. Things looked pretty good until the March jobs report came in far weaker than expected," said NACM Economist Chris Kuehl, PhD. "Now there is talk that 2012 will follow the same pattern that was noted in 2011—a nice start to the year that was followed by a slump caused in no small part by the hike in gas prices."

Inflation concerns also drove many survey participants to register their pessimism. "Fully a third of the respondents cited inflation as their number one concern even as they see weaker than expected demand," said Kuehl. "The most immediate threat has come from the escalating price of fuel, but they all note that gas prices have forced other costs up already."

"The most interesting set of comments as far as the general economy is concerned is that almost a quarter of the companies polled plan to raise their own prices in the next few months," Kuehl added. "This is the process that really kicks inflation into high gear."

Jacob Barron, CICP, NACM staff writer