Small business owners are the most optimistic they have been since January 2008, according to the latest Wells Fargo/Gallup Small Business Index, conducted Nov. 11-17.

In the quarterly small business survey, which measures the optimism of small business owners, the overall Index score increased significantly to 80 in November, up 12 points from July and up 26 points from a year ago. This represents the highest optimism reading since January 2008 when the Index score was 83, and the largest quarterly increase in a year. A major driver behind the increased optimism is how business owners are feeling about the year ahead. Forty-five percent say they expect the operating environment for their business will be better in 2017. The increase in small business optimism was largely driven by business owners’ expectations that their finances will improve in 2017.

Key drivers of this quarter’s Index score included:

• Revenue – More than half (58 percent) expect their business’s revenue to increase a little or a lot in the next 12 months, up from 48 percent in July
• Stronger cash flow – Seventy percent believe their cash flow will be somewhat or very good in the next 12 months, up from 65 percent in July. 
• Capital spending – Thirty-five percent say they plan to increase their capital spending a lot or a little, up from 25 percent in July. 
• Hiring – Thirty-six percent expect the number of jobs at their company to increase a little or a lot over the next 12 months, up from 21 percent in July. This is the highest reading in the 13-year history of the survey.

“The latest overall Index score tells us that business owners are feeling positive about the future and have a renewed sense of confidence as they look to the year ahead,” said Mark Vitner, Managing Director and Senior Economist for Wells Fargo Securities. “Not only do small business owners report that the operating environment for their businesses will be better in 2017 than it was in 2016, but business owners are anticipating growth for their businesses in the new year as more plan to increase their capital spending, add staff and apply for credit.”

Small Business Owners and Credit

In the November survey, almost half (44 percent) of small business owners surveyed said they expect credit will be somewhat or very easy to obtain in the next 12 months, up from 37 percent in July. This represents the highest reading on this measure since January 2008 when 48 percent of small business owners said credit would be somewhat or very easy to obtain over the next 12 months. When asked if they were planning to apply for any new credit products for their business in the next year, 14 percent of small business owners said they were, up slightly from 11 percent in July.

Small Businesses and Post-election Priorities

In the November survey, small business owners were asked about their priorities for the incoming president and Congress. When asked what issues the new president and Congress should focus on, 81 percent of small business owners said actions relating to changes in the tax code, tax regulations, and tax rates for small businesses were most important. Other top issues include actions relating to healthcare and the current healthcare law (76 percent), and overall action on government regulations impacting small business owners (70 percent) and actions that could impact oil prices or energy costs (59 percent).

A little more than half (51 percent) think that actions taken by the new president and Congress next year will make their businesses better off, 17 percent think their businesses will be worse off and 26 percent think the actions will have no effect.

Small business owners also were asked what the new administration could do to help small businesses grow in the years ahead. Ninety percent say improving the economy overall, 81 percent say reducing taxes on small businesses, and 78 percent say simplifying the tax code as it applies to small businesses would be very or extremely effective. Sixty-one percent say they think the new president will focus on the issues important to them as a small business owner.

Small Business Challenges

When business owners were asked to identify the most important challenges facing their business today, attracting customers and finding new business (11 percent) and government regulations (11 percent) were cited as the top concerns. Hiring and retaining quality staff was the second most frequent mention at 10 percent, followed by the economy (8 percent), and healthcare costs (8 percent). These challenges have been consistently reported as the top concerns of small business owners since early 2013, although the order of concerns shifts from quarter to quarter.

Small Business Index Key Drivers

Wells Fargo and Gallup survey small business owners across the nation each quarter to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability. The present situation score dipped slightly to 24 in November, down from 29 in July, while the future expectations score rose 17 points to 56.

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small business owners on current and future perceptions of their business financial situation. The Index consists of two dimensions: 1) Owners’ ratings of the current situation of their businesses and, 2) Owners’ ratings of how they expect their businesses to perform over the next 12 months. Results are based on telephone interviews with 602 small business owners, with annual revenues up to $20 million, in all 50 United States conducted November 11-17, 2016. The overall Small Business Index is computed using a formula that scores and sums the answers to 12 questions — six about the present situation and six about the future. An Index score of zero indicates that small business owners, as a group, are neutral — neither optimistic nor pessimistic — about their companies’ situations. The overall Index can range from -400 (the most negative score possible) to +400 (the most positive score possible), but in practice spans a much more limited range. The margin of sampling error is +/- four percentage points. The highest Index reading was +114 in the fourth quarter of 2006, and the lowest reading was -28 in the third quarter of 2010.,