Small Business Optimism Showing Early Signs of Slippage
NEW YORK (AP) — The fears of a slowing economy that sent stocks falling the past few months may be spreading to small business owners who have been quite optimistic in recent years.
The problem for businesses is consumer spending that, while strong now, is showing signs of slippage. Economists predict consumer spending will begin slowing later in the year, in part because taxpayers won't be getting the surge in take-home pay many got in 2018 after the new tax law took effect. Many small businesses like retailers, restaurants and service providers rely on consumers for their revenue, making them vulnerable to a drop in spending.
The monthly survey that the advocacy group National Federation of Independent Business takes of its members showed a small dip in optimism during November and December, with expectations of lower sales in the coming months a key factor in the decline.
Owners who are mindful of the devastating impact the Great Recession had on small businesses are likely to be sensitive to signs of a slowdown. Recent economic reports and forecasts show some of the reasons why their confidence seems to be edging lower:
— The Economic Advisory Committee of the American Bankers Association forecasts that consumer spending will fall in the fourth quarter to a growth rate of 2.2 percent, down from 2.9 percent in 2018's fourth quarter. Retailers, including many small and independent merchants, expect to bring in a significant chunk of their revenue during the final three months of the year.
— Consumers are losing their ebullience about the economy and where it's headed. The Conference Board, a business research group, said its consumer confidence index fell sharply to 128.1 in December from 136.4 in November; it's at its lowest level since July. The December reading is still historically strong, but consumers' expectations for the economy over the next six months fell to their lowest level since November 2016.
— Harvard University's Joint Center for Housing Studies issued a report last week predicting that homeowners' spending on remodeling and repairs will slow to an annual growth rate of 5.1 percent by the fourth quarter, down from 7.5 percent in 2018. Many companies involved in home remodeling are small businesses including general contractors.
Although owners had a burst of hiring in December, according to the payroll company ADP, they added on average about 20,000 fewer jobs each month in 2018 than they did in 2017. Monthly hiring numbers fluctuated widely last year, according to ADP's analysis of its customers' payroll data. Many owners have said in surveys they were struggling to find qualified job candidates, but many others, still cautious years after the recession ended, said they didn't want the expense and risk of expanding their staffs.
By AP reporter Joyce Rosenberg