Small Business Optimism Fading Into Fiscal Cliff

When small businessmen responded to the survey of the National Federation of Independent Business (NFIB) President Obama had not yet been reelected. Judging by the reaction of the stock market, I expect it’s safe to say that a good deal of businessmen were surprised by the result. So, in a few weeks, when they are asked again about how they feel, I likewise expect the slightly improved optimism that small businessmen expressed in October’s Small Business Optimism Index will disappear.

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Reported Tuesday, the NFIB’s Small Business Optimism Index gained by 0.3 points, rising to a mark of 93.1. Despite the improved headline figure, concern was clearly evident in the record high percentage (23%) of business owners expressing uncertainty about business conditions six months forward. NFIB Chief Economist William Dunkelberg noted that the stalemate in Congress and the same government balance (read loggerhead) that existed before November 5th will probably paralyze business activity through the close of the year. As the fiscal cliff approaches, the same stubborn stances that led Standard & Poor’s (of McGraw-Hill (NYSE: MHP)) to downgrade the United States last year seem likely to pervade again. As a result, Dunkelberg says not to expect small businessmen to invest capital or to hire employees.

It’s my view that heading into the election, small businessmen and Americans generally did not consider fully what they might find on the other side. Now that nothing has changed with regard to the stalemate in Washington D.C., fear is the main driver of capital preservation. That means money is coming out of risky investments and being kept from new investment in assets and people.

The report that is the focus of this article seems to reflect that view. It shows October increases in inventory, and expected improvement in sales and plans to make capital outlays six months out. But the gains were minute, and given the decreased probability of satisfactory result now, businessmen are likely to lose hope.

In an earlier article, we noted that stocks should now be moved here and fro by developments in Washington D.C. The SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (Nasdaq: QQQ) are relatively unchanged heading into the close of trading Tuesday. The SPDR S&P 600 Small Cap Index ETF (NYSE: SLY) is lower by 0.4%. Efforts to resolve the issue have only just begun, with Congress convening today for the first time since before the election. President Obama met with labor union bosses today to discuss the issue with them.

In my opinion, this should be the top priority of every government representative every single day, and resolution should be targeted for sooner rather than later. Each day that businessmen lack clarity on the tax and economic outlook is another day of economic damage done to the economy, ironically in the name of that same economy. The seriousness of this issue cannot be overstated, and so I suggest every reader who cares about his country call his Congressman and demand a compromise be worked out immediately. Let us take this opportunity to discuss and debate specific ideas for compromise.

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