Small Business Owner Optimism Surges

December 23, 2010

This article is included in these additional categories:

Analytics, Automated & MarTech | Data-driven | Financial Services | Staffing

gallup-small-biz-index-dec-2010.JPGThe Wells Fargo/Gallup Small Business Index, a measure of small-business owners’ perceptions of their operating environments, surged 24 points in November 2010, from -28 to -4. This represents a sharp improvement from the previous in July 2010 and suggests that small business owners, though still more pessimistic than optimistic overall, are the most positive they have been since hitting roughly zero in April 2009.

Future Expectations More Positive in November

gallup-small-biz-future-expectations-dec-2010.JPGThe Future Expectations Dimension of the index led the overall improvement seen in November 2010, as it surged 17 points to +15. Small-business owners’ expectations for the next 12 months are now the most positive they have been since July 2008, when the Future Expectations Dimension score exceeded 20.

Specifically, Wells Fargo/Gallup data indicates small-business owners’ expectations for the next 12 months improved significantly in terms of revenues, cash flow, capital spending, and hiring. At the same time, the percentage of small-business owners expecting their financial situations to be somewhat or very poor over the next 12 months fell significantly, from 22% in July to 17% in November.

Present Situation Improved but Still Negative

gallup-smallbiz-present-dec-2010.JPGOverall conditions as reflected by the Present Situation Dimension of the index remain negative, at -19 in November, compared with -26 in July. Still, Wells Fargo/Gallup data shows small business owners are currently more positive about their present operating situation as a result of a significant improvement in the percentage saying their revenues increased over the past 12 months, combined with improvements that are more modest in other aspects.

Small Business Index Foretells Future Activity

The Small Business Index tends to be a precursor of future economic activity, according to Wells Fargo and Gallup. It peaked at the end of 2006 and matched that peak in June 2007, just prior to the beginning of the recession late that year. The index consistently declined through 2008 and into mid-2009, which economists designated as the point when the recession was officially over.

It then improved modestly for the next three quarters as the economy recovered more slowly than anticipated, before establishing a new bottom in July 2010. In the latest reading, the index has recovered significantly, possibly marking another inflection point for the US economy.

Economy Leading Source of Consumer Anger

Despite economic optimism from small business owners, when given a list of current issues that make some people angry, 63% of US adults said they are angry about the economy, according to a recent BBC World News America/Harris Poll. This barely beat the 62% of respondents who said they are angry about the government in general and about unemployment.

Other things that majorities are very or somewhat angry about are taxes (58%), immigration (56%), education (51%) and big business (52%). Fewer people are angry about same sex and gay rights (33%), the environment and energy issues (47%) and foreign policy (48%).

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