US business sentiment likely to rise in coming months as labor market improves further

The NFIB's small business optimism index for the US reached 92.9 in February, falling 1 point, as compared with expectations of a slight rise to 94. Six of the ten components declined in February, whereas the other four remained unchanged. On a monthly basis, labor market indicators fell, with firms showing decreased job openings and worker compensation in February.

Forward-looking labor subcomponents, which consist of plans to boost wages and employment, also dropped slightly in February. Other indicators such as expectations for higher real sales and capital spending dropped by three and two points respectively.

The NFIB data was definitely disappointing as small business optimism weakened for the second consecutive month. Current and forward-looking sentiment has been even more discouraging. Recent US economic unease and political uncertainty is expected to have resulted in the downbeat sentiment. Political uncertainty is expected to continue for the rest of 2016. However, economic uncertainty has eased slightly after weeks of volatile markets that increasingly priced higher chances of a recession in the US in 2016.

However, recent data has alleviated certain fears for some time. Nevertheless, the volatility is expected to be elevated for some time. But further rebound in labor market is expected to boost domestic demand and also boost business confidence in the coming months.