Uncertainty Reaches Record High Levels for Small Business Owners
A recent survey conducted by NFIB reports, Uncertainty is a significant barrier to economic growth in the small-business sector. Uncertainty limits the ability of small-business owners to pursue investment opportunities in their business. NFIB’s 2016 Small Business Problems and Priorities survey found that two of the top ten most severe problems affecting small-business owners are uncertainty related. Uncertainty over economic conditions and uncertainty over government actions are ranked fourth and sixth out of 75 business problems. About one-quarter of small business owners find each a “critical” problem in operating their business.
What is “uncertainty”? Basically it is the inability to anticipate the outcomes of important future events which are critical to planning and forecasting for the firm. The rising level of discomfort is apparent in NFIB’s Uncertainty Index, which is created from responses to six questions from the monthly Small Business Economic Trends survey. The Index is based on the frequency of “don’t know” and “uncertain” responses over these six questions (see Appendix).
The Uncertainty Index reached a 42 year record high level in the past two months. Small-business owners were unable to directionally anticipate future events or conditions at record levels. Many owners could not say, for example, whether business conditions would improve, or deteriorate, or stay the same. They had no view held with any certainty, and thus were unable to incorporate that information into a forecasting or planning framework. High levels of uncertainty have a chilling effect on inventory investment, capital spending and hiring. Being fairly confident about an outcome, good or bad, allows planning to occur, but having no clear direction on which to base a decision generally puts the decision on hold.
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