Global growth concerns, political uncertainty to weigh on US business confidence in near term

In March, the US NFIB’s small business optimism index dropped for the third straight time. It declined 0.3 points to 92.6.  This was below market projection of a moderate increase to 93.5. Delving into details, out of ten subcomponents, six declined on the month while four registered improvement. The total share of companies anticipating the economy to improve rose by four points; however it continued to be in negative territory for the thirteenth consecutive month at -17%. Moreover, the share of companies believing that a good time to expand is now declined by two points for second straight month to 6%.

There were mixed indicators from labor market, indicating the labor market cycle is maturing. Companies indicated that job openings declined while plans for hiring also dropped slightly. Meanwhile, the share of companies increasing compensation for worker remained unchanged from February at 22%, while the share of companies planning to increase compensation rebounded by 4 points to 16%. This implies that labor conditions are becoming very tight, according to TD Economics.

In contrast to the majorly positive sentiment from other March economic data and the improved sentiment of financial market, small business optimism continues to disappoint. However, global economic growth concerns remain, while small businesses continue to face challenges from increasing regulation, noted TD Economics.

Furthermore, small business expansion plans are being impacted from political uncertainty, added TD Economics. Business confidence is expected to be weighed on by these factors in the near term and might also become more pronounced in future, said TD Economics.

However, there are still certain causes for optimism. Labor market indicators continue to be at post-recession high levels in spite of losing momentum in the last few months. This implies continued job growth, noted TD Economics. Moreover, drop in overall confidence has not impacted plans to increase worker compensation.

“Rising wages and an economy that continues to pull workers from the sidelines, along with the boost in disposable income related to relatively low energy prices, should over time manifest in stronger sales for businesses thus helping shore up small business confidence over the medium-term”, added TD Economics.