U.S. Small-Business Owners' Optimism Declines in July
Economy

U.S. Small-Business Owners' Optimism Declines in July

Owners less optimistic about next 12 months

PRINCETON, NJ -- U.S. small business owners' optimism declined in July, with the Wells Fargo/Gallup Small Business Index at 17, down from April's four-year high of 23, but similar to the 15 of January. A year ago, the index was at zero, meaning owners were essentially neutral -- neither optimistic nor pessimistic -- about the present and future small-business operating environment.

Trend: Wells Fargo/Gallup Small Business Index

The quarterly survey was conducted July 9-13, 2012, with a random sample of 600 small-business owners, representing the third quarter of 2012. Small-business-owner optimism has improved since July 2010, when it reached its low point of -28, but remains substantially below pre-recession levels that were generally in the triple digits after the index was initiated in August 2003.

Future Expectations Bring the Overall Index Lower

The Future Expectations Dimension of the index, which consists of owners' ratings of their businesses' expectations for the next 12 months in several respects, declined to 18 in July from 24 in April and 21 in January. Small-business owners' future expectations are now at their lowest level of 2012, but they remain more optimistic than pessimistic.

Trend: Wells Fargo/Gallup Small Business Index -- Future Expectations Dimension

The decline in small-business owners' future expectations is responsible for the drop in the overall index. Small-business owners' expectations for the next 12 months worsened significantly in several key areas:

  • The percentage of owners expecting their financial situation to be very or somewhat good over the next 12 months fell to 59% in July from 66% in April;
  • The percentage of owners expecting their revenues to increase fell to 43% in July from 49% in April; and
  • The percentage of owners expecting their company cash flows over the next year to be poor increased to 23% in July from 18% in April.

See complete data and trends from the Wells Fargo/Gallup Small Business Index on page 2.

Present Situation Dimension Remains in Neutral Territory

Owners' ratings of their overall operating conditions remained neutral during July, with the Present Situation Dimension of the index once again at -1, as it was in April. While small-business owners are not positive about their current operating environment, the past two neutral ratings are the highest for this dimension since November 2008.

Trend: Wells Fargo/Gallup Small Business Index -- Present Situation Dimension

Implications

Small-business-owner optimism appears to be following a pattern similar to Gallup's monitoring of overall economic confidence among U.S. consumers. In January 2011, the Wells Fargo/Gallup Small Business Index turned positive for the first time since late 2008, and economic confidence improved to its best level since the recession began. However, small-business owners' optimism and economic confidence fell back for the remainder of that year, particularly as the federal debt ceiling confrontation took place.

This year, small-business-owner optimism increased for two consecutive quarters, before falling back in July and essentially eliminating April's gains. Similarly, economic confidence improved steadily for most of the first half of 2012, but worsened in July, falling back to January's level.

Small-business-owner optimism is essential to U.S. economic growth and job creation. But it is hard to see how owners can become significantly more optimistic until jobs conditions improve substantially, consumers begin to exhibit sustained, increased economic confidence, and consumer spending increases.

See complete data and trends from the Wells Fargo/Gallup Small Business Index on page 2.

About the Wells-Fargo Small Business Index

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small-business owners on current and future perceptions of their business financial situations. Visit the Wells Fargo Business Insight Resource Center to access the full survey report and listen to Dr. Scott Anderson, Wells Fargo Senior Economist, in his quarterly Small Business Index podcast.

Survey Methods

Results for the total dataset are based on telephone interviews with 600 small business owners, conducted July 9-13, 2012.For results based on the total sample of small business owners, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.

Sampling is done on a random-digit-dial basis using Dun & Bradstreet sampling of small businesses having $20 million or less of sales or revenues. The data are weighted to be representative of U.S. small businesses within this size range nationwide.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

For more details on Gallup's polling methodology, visit www.gallup.com.

Trend: How would you rate your company's financial situation today?
Trend: How do you think your company's financial situation will be 12 months from now?
Trend: Over the past 12 months, did your company's revenues increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?
Trend: What is your best estimate of your company's revenues over the next 12 months?
Trend: How would you rate your company's cash flow over the past 12 months?
Trend: How do you think your company's cash flow will be over the next 12 months?
Trend: Over the past 12 months, did the amount of money your company allocated for capital spending -- such as computers, machinery, facilities, or other long-term investments -- increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?
Trend: Over the next 12 months, do you expect the amount of money your company allocates for capital spending -- such as computers, machinery, facilities, or other long-term investments -- to increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?
Trend: Over the past 12 months, did the overall number of jobs or positions at your company increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?
Trend: Over the next 12 months, do you expect the overall number of jobs or positions at your company to increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?
Trend: Over the past 12 months, how difficult or easy was it for your company to obtain credit when you needed it?
Trend: Over the next 12 months, how difficult or easy do you think it will be for your company to obtain credit when you need it?
Gallup http://www.gallup.com/poll/156458/Small-Business-Owners-Optimism-Declines-July.aspx Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A +1 202.715.3030