Credit Conditions Unchanged, Small Businesses in "Maintenance Mode" inLatest NFIB Survey

Credit conditions remained unchanged in the latest National Federation of Independent Business (NFIB) index of small business optimism, which increased 0.9 points to 88.9 in January. Despite the increase, 88.9 remains one of the lowest readings in the survey's 40-year history, indicating that small businesses are keeping their heads above water by reverting to "maintenance mode" in terms of spending and borrowing.

Only 6% of survey respondents said that all their credit needs were not met, the same reading as December's. Thirty-one percent of respondents reported that all their credit needs were met and only 3% considered a lack of financing to be their business' top problem. Another 31% of all owners reported borrowing on a regular basis, which was up two points from December's readings, but still a historically low figure.

News on planned capital outlays by small businesses was even worse, with the net percent of owners expecting better business conditions in six months stuck in a net negative 30%, a five point improvement from December but still the fourth lowest reading in nearly 40 years. Surveyed businesses seem content to maintain their current situations, focusing less on investment and growth and more on reducing inventory.

Economic uncertainty from Capitol Hill continues to be the dominant narrative driving respondents' pessimism. "Bad news continued to dominate the information flow to business owners. Gross Domestic Product (GDP) actually fell in the fourth quarter, and grew less than 2% for all of 2012. A sharp decline in defense spending subtracted about 1.3 percentage points from the growth rate, a warning as to what might happen if sequestration actually occurs with no deal to change its magnitude and timing," said NFIB Chief Economist Bill Dunkelberg. "A sharp decline in inventory building also knocked a point or more off the GDP growth rate. But even if those events had not occurred, overall growth would have still been around 2%."

- Jacob Barron, CICP, NACM staff writer

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