Business Optimism and uncertainty, down and up Ana LopezApril 4, 20230178 views Small business owners have been pessimistic for more than a year. NFIB’s Index of Small Business Optimism has been well below its 49-year average of 98 as of January 2022. Chart 1 shows the Index on a quarterly basis (survey from the first month of each quarter). And prior to that period, the Index averaged 99 from December 2020 through December 2021, just 1 point above its 49-year average. Views on future business conditions are very negative and expected real sales are currently 6 points below the 49-year average. Yet owners continue to post historically high numbers of open positions and hiring plans. Optimism index NFIB The uncertainty index is historically high, apart from the huge jump during the emergence of Covid. Most questions in the survey have three answers to choose from, “higher” (increase, etc.), “lower” (decrease, worse, etc.) and a third choice, “don’t know”, “uncertain”, etc. The latter is chosen when the respondent cannot give a directional answer to a question (eg “better” or “worse”). The Uncertainty Index counts the number of times respondents gave an ambiguous answer to six of the 10 components in the Optimism Index. The higher the uncertainty index, the higher the number of ambiguous answers and the higher the number of owners who give those answers. This peaked as Covid spread and the government closed all but “essential” businesses. It was low in the 2008 recession; owners were firm in their responses, even if they were pessimistic. Uncertainty index NFIB Chart 3 shows the distribution of Optimism and Uncertainty in SMEs. Nearly half (46%) are quite pessimistic, while only 24% are very optimistic. Twenty-two percent of owners gave “uncertain” answers to three or more of the six questions in the Uncertainty Index, an uncertain condition. Optimism index and uncertainty index NFIB By industry, the incidence of optimists is highest in the non-professional services sector (33% over 120), while optimists are least common in wholesale, finance and real estate. Uncertainty was highest in the services sector (also the most optimistic) and in finance and real estate, along with the related construction sector where optimism was relatively high. Retail companies and the transport companies that supply them were the most confident in their answers to the forward-looking questions. Industry optimism and uncertainty NFIB As owners gain a clearer picture of their future, ambiguous responses will turn into firm responses (positive or negative). Hopefully, the changes will be confirmatory and the Optimism Index will begin to rise from its low levels, supporting an improvement in the economy.