Small businesses are a driving force in U.S. economic growth and the major source of new job creation -- a fact that takes on particular significance in the current "jobless recovery." A key finding of the new Wells Fargo/Gallup Small Business Index* may yield a new source of optimism concerning job creation: Nearly one out of four small business owners (23%) say that they expect to increase the number of jobs (or positions) at their companies over the next 12 months. This is three times the 8% who say they expect the number of jobs they have to decrease over the same time period.
This is only one of a number of new insights provided by the new joint effort between Wells Fargo and Gallup to measure small business owners' perceptions of their current operating environment and their expectations for the future. Gallup and Wells Fargo will conduct these surveys and report the results on a quarterly basis.
The Dimensions
The overall Small Business Index is the sum of two dimensions: 1) small business owners' ratings of their businesses' current situations (the Present Situation Dimension) and 2) small business owners' ratings of how they expect their businesses to perform over the next 12 months (the Future Expectations Dimension). Because of the way the Index is constructed, a positive score can be interpreted as "net-positive ratings" from owners about their companies. A negative number reflects "net-negative ratings." Any number close to zero suggests that small business owners are about evenly divided between positive and negative assessments.
In the baseline survey, the overall Wells Fargo/Gallup Small Business Index debuts at 69, with the Present Situation Dimension at 21, and the Future Expectations Dimension at 48. These Small Business Index scores suggest that small business owners rate their current operating environment as relatively weak. However, their expectations for the next 12 months reflect a great deal of optimism about future business conditions.
Company Revenues Over the Past 12 Months
The greatest problem facing small businesses over the past year has been a lack of revenue growth. Nearly half of the nation's small business owners (44%) report that their revenues have decreased a lot or a little over the past 12 months. Given this lack of growth, it is little wonder that many of those owners rate their current operating environment as relatively weak.
However, some companies are continuing to grow. About a third of small business owners (35%) say that their revenues increased a lot or a little over the past 12 months.
Company Job Creation Over the Past 12 Months
Just about as many small business owners (17%) say that the number of jobs decreased in their companies over the past 12 months as say that number increased (19%). This is certainly consistent with the finding that many companies have experienced declining revenues during the past year while others have continued to grow. The fact that just as many small businesses lost jobs in the past year as added jobs helps explain why job creation in the United States has been so anemic.
Company Revenues Over the Next 12 Months
In sharp contrast to the less-than-enthusiastic assessments of their current revenue, small business owners are optimistic about the future. Six in 10 small business owners (59%) say they expect their business revenues to increase a lot or a little over the next 12 months. Only 1 in 10 (11%) say they expect their revenues to decrease over the next 12 months. Given this optimism about their future growth, most small business owners have reason to expect their future operating environment to be considerably better than it is today.
Company Job Creation Over the Next 12 Months
Nearly one in four small business owners (23%) say that they expect to increase the number of jobs (or positions) at their companies over the next 12 months, while only 8% say they expect that number to decrease. This seems reasonably consistent with the optimism small businesses are expressing about their revenue growth prospects during the year ahead.
Bottom Line
Small businesses account for more than half the private-sector jobs in the United States. Hence, the fact that many more small businesses owners expect to increase their hiring level in the months ahead than expect to decrease it is a very positive sign for the unemployment situation in the United States. Government leaders at all levels -- federal, state, and local -- have a significant stake in doing everything they can to help today's small business owners make those hiring intentions a reality.
*The new Wells Fargo/Gallup Small Business Index is not based on a survey of the bank's small business customers. Instead, it is based on a nationally representative random survey of small business owners from across the United States. For this initial baseline survey report, Gallup conducted telephone interviews with 591 small business owners (having $20 million or less in annual sales) over the period of Aug. 5 to Aug. 20, 2003. For results based on this total sample of small business owners, one can say with 95% confidence that the margin of error is ±4 percentage points.
