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

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

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.

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.

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.
From: http://www.gallup.com
Updated: August 7, 2012