The NFIB Index of Small Business Optimism increased 0.9 points to 88.9, still one of the lowest readings in the survey’s 40 year history. Economic growth in the fourth quarter turned negative. Yes, 2 million jobs were added last year, but the population grew by 3 million so, mathematically, far fewer of those who were dislocated by the recession have found a job. It is no surprise that consumer sentiment remains depressed as well. Expectations for business conditions in six months improved 5 points to negative 30 percent, the fourth lowest reading in survey history. Owner pessimism is certainly not surprising in light of higher taxes, rising health insurance costs and increasing regulations. There was very little to be positive about. Only 11 percent of consumers thought government was doing a good job in the Reuters/University of Michigan survey, a very poor showing.

Bad news continued to dominate the information flow to business owners. GDP actually fell in the fourth quarter, and grew less than 2 percent 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. 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 percent, not enough to produce the jobs needed to reduce unemployment meaningfully. Indeed, the unemployment rate went up. Now the focus is on what Congress will do to avoid the sequestration and deal with the debt limit. Odds are a deal will be reached, but uncertainty reigns, just what it will look like, how much more in tax revenue and how meaningful spending reductions will be is very unclear. As a consequence, uncertainty about the growth in the economy and economic policy continues to depress investment spending and hiring and keeps consumers depressed and spending less as well.

So, no surprise, the Optimism Index barely budged. The only good news is that it “budged “up, not down. Still, the outlook for business condition midyear is grim, Thirty-five percent expect conditions to be worse, 10 points better than December, but historically one of the worst readings in 40 years of survey history, rivaling the 1980 figures. Many economists argue that what is needed is new firms to start and create new jobs. Nice idea, but it would take a net 1.6 million new starts (with an average of 5 employees) to employ the 8 million who lost their jobs in the Great Recession. “New” firms didn’t lay off those workers, “existing” firms did, and they must rehire workers if the unemployment rate is to be significantly reduced. And, not many new firms will start in this environment. Until recently, far more firms were being eliminated than started because we not only built too many houses in the boom, we also started too many new firms to serve consumers that were spending 99 percent of every after-tax income dollar in late 2008. Population growth generates the need for more firms and job growth in the long haul, but our current problem is that existing firms still haven’t re-hired to their 2007 levels. A huge chunk of this is in construction.

Whatever Congress does, the private sector will continue to push the economy forward. As Thoreau once observed, the only way government can help business is to get out of the way. Congress can certainly slow the economy down, even help create crises, but in the longer run, the economy will grow, especially with population growth of 3 million annually (thus housing must recover). We just have to wait and see what the “management team” decides to do for USA, Inc. Hopefully, their decisions will improve our “bottom line”.