Small business optimism in the economy dropped in September ahead of the government shutdown, according to a survey published Tuesday, which adds that businesses are likely to remain pessimistic even though it is too early to measure business confidence with the federal shutdown in its second week.
Small businesses said they were less likely to hire new employees and were pessimistic about whether their earnings would increase, which caused the Small Business Optimism Index to drop 0.2 percent from 94.1 to 93.9 in September, according to a monthly report published Tuesday by the National Federation of Independent Businesses (NFIB).
Businesses remained upbeat on some issues, including optimism that it is a good time to expand a company, optimism about credit conditions and expectations for higher retail sales, but the report also cited businesses were less hopeful that the economy would improve.
This modest pessimism on future economic conditions reflects how business owners "are keeping an eye on Washington," said Bill Dunkelberg, chief economist for the NFIB.
"Prospects for politicians and policymakers 'getting it right' are low, and job creators are rolling their eyes and shaking their heads thinking, 'this is certainly not the way to run the largest enterprise in the world,'" Dunkelberg said in the report. "Between botched health care implementation and one manufactured crisis after another, consumers and small business owners are likely to remain pessimistic, accepting the notion that growth is going to be sub-par and that their government is likely to continue in dysfunctional mode for months to come."
The government shutdown will negatively affect hiring by small businesses in the near future, and consequences will be even worse if a deal on the federal debt is not reached, says Mark Hamrick, Washington bureau chief of Bankrate, a consumer finance company. If a solution is not reached to raise the federal debt ceiling by Oct. 17, then the financial markets might lose faith in the ability of the U.S. to pay its bills, which could lead to higher interest rates in numerous sectors including mortgages, credit cards and auto loans.
"It's all about the ability to predict what is going to happen and to plan," Hamrick says. "If you are even remotely associated with an industry that depends on federal funding this is going to affect you."