Small businesses in the U.S. are reporting declining optimism, with capital investments down across most major categories, according to a new report from the National Federation of Independent Business.  

The NFIB's Index of Small Business Optimism fell 0.9 points to 103.6, but sustained the surge in optimism that started the day after the election. The Index peaked at 105.9 in January and has dropped 2.3 points to date, no doubt in part due to the mess in Washington, D.C. Four of the 10 Index components posted a gain, five declined, and one was unchanged. Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform remain stuck in the bowels of Washington politics. Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.

"A continuation of the high levels of optimism in the small business sector will depend heavily on Congressional progress on the major issues for small business owners: healthcare, tax reform and regulatory relief," NFIB analysts said. "The Republicans have the votes to pass any bill that they agree on, but seem unable to agree on any bill, unable to find one that satisfies all the “opinion camps” in their membership. Because of this, by withholding all their votes on anything, the Democrats can block any bill which has only a few senators in opposition. More substantial progress is needed on these major issues if owner optimism is to be sustained and produce accelerated hiring and spending."

Fifty-seven percent reported capital outlays, down 5 points. Of those making expenditures, 40 percent reported spending on new equipment (down 6 points), 21 percent acquired vehicles (down 5 points), and 13 percent improved or expanded facilities (down 2 points). Four percent acquired new buildings or land for expansion (down 2 points) and 11 percent spent money for new fixtures and furniture (down 3 points). Capital spending has faded from earlier in the year, but perhaps the decline will be reversed in the coming months as the percent of owners planning capital outlays in the next 3 to 6 months rose 3 points to 30 percent, the strongest reading since September 2007.

Four percent of owners reported that all their borrowing needs were not satisfied, up 1 point and historically very low. Twenty-seven percent reported all credit needs met (down 4 points) and 54 percent explicitly said they did not want a loan, up 3 points. The reduction in the percent not having their credit needs satisfied moved to the “don’t want a loan” category. Including those who did not answer the question, 69 percent of owners have no interest in borrowing, up 3 points. Only 1 percent reported that financing was their top business problem compared to 22 percent citing taxes, 19 percent citing regulations and red tape, and 15 percent the availability of qualified labor. Weak sales garnered 10 percent of the vote. Twenty-seven percent of all owners reported borrowing on a regular basis (down 1 point). Overall, loan demand remains historically weak, even with cheap money. The net percent of owners expecting credit conditions to ease in the coming months improved 1 point to a net negative 3 percent.