The small business optimism index edged 0.1 points higher in January to 105.9, attaining the highest level since December 2004 and surprisingly holding on to the outsized gains registered in the prior two months. After the index surged 7.4 points in December, the largest increase in the survey's history, and a sharp increase of 3.5 points in November, most analysts were expecting a moderate pullback of at least a point.
Five of the 10 components of the index increased and 5 decreased, though there were no large swings and some of those declining remained near record high levels. Increases were seen on the jobs front, with plans to increase employment up 2 points to 18 and current job openings also up 2 points to 31. Expected credit conditions rose 3 to minus 3, and 2 points were added to the net percentage of small business owners affirming that now is a good time to expand, which reached 25 percent.
Curbing the optimism index in January but remaining at very high levels were expectations that the economy will improve, which fell 2 points to a still enormously optimistic 48 net percent, plans to increase capital outlays, down 2 points to 27, and expectations of higher real sales, down 2 points to 29.
Besides credit conditions, only 2 other components remained negative, with current inventories falling 2 points to minus 5 and earnings trends coming in as the most pessimistic of the lot despite being up 2 points to minus 12.
NFIB attributed the surge in small business optimism since the Presidential election to the belief by small business owners, who are hopeful that the new administration will follow through on its policy proposals, that the excessive regulations, taxes and spiraling health insurance costs that have held down growth for years are about to change for the better.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
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