Sales, Certainty Key to U.S. Small Business Capital Spending

Sales, Certainty Key to U.S. Small Business Capital Spending
At least seven in 10 U.S. small-business owners say a better sales outlook, more certainty about their operating environment, and lower federal taxes would make their companies more likely to make capital investments in the next 12 months. Lower on the list -- although still chosen by a majority -- were fewer government regulations, more affordable technology, and special government tax credits.

These results are from the quarterly Wells Fargo-Gallup Small Business Index survey, conducted July 9-13, 2012, with a random sample of 600 small-business owners.

Overall, 41% of U.S. small-business owners expect to make capital investments over the next 12 months. That compares with 53% who say they have made capital investments over the past 12 months.

State of the Economy Top Issue for Those Not Intending to Make Capital Investments

In a separate question, the 57% of small-business owners who said they do not plan to make capital investments over the next year were asked to say whether each of six issues was a reason for this.

The top response, at 63%, was that they are too concerned about the overall state of the economy to do so. This was followed by feeling too uncertain about the future of their business (56%), feeling that their business doesn't need capital improvements (54%), and a lack of revenue and profits to make new capital investments (53%). About one in three owners said the needed capital improvements are too expensive or that they are too uncertain about the availability of credit to make such improvements.

Owners Planning Capital Investments Focus on New Equipment and Technology

The 41% of owners who intend to make capital investments over the next 12 months are most likely to say they plan to invest in new equipment and machinery (64%) and new computers (61%). More than half of these owners plan to invest in new software or a new website (56%) or new mobile devices (52%). Forty-one percent say they plan to invest in business expansion or development of new products, while 16% are looking toward investing in new facilities.

Owners Plan to Use Internally Generated Funds for Capital Investments

Nine in 10 small-business owners who intend to make capital investments over the next 12 months plan to fund their investments using their company's profits. Additional funding sources include credit, mentioned by 39%, savings (31%), and outside investors (14%).

In a separate question and reflecting owners' intentions to largely self-fund their future capital investments, only 14% expect to apply for any form of new credit for their business over the next year.

Implications

The factors inhibiting small-business owners as they consider making capital investments over the next 12 months are consistent with the overall decline in owner optimism since April. They also seem consistent with the slowing of the overall U.S. economy as well as declining economic confidence and a worsening unemployment situation.

At the same time, two reasons small-business owners most commonly say would make them more likely to make capital investments -- better sales and a more certain operating environment -- suggest this situation is unlikely to change in the near future. Given the high unemployment rate and increasing gas prices, it seems unlikely small-business owners will see an improved sales outlook anytime soon.

Further, the run-up to the presidential election may increase economic uncertainty, rather than reducing it. The pending election has also brought things nearly to a halt in Washington, suggesting the federal government is not likely to make much effort in the near term to help small businesses by lowering federal taxes, reducing federal regulations, and/or providing special government tax credits. Thus, small business may be in a holding pattern of sorts until the outcome of the Nov. 6 election is known.

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.
From: http://www.gallup.com
Updated: August 21, 2012