Small Business Optimism Hits 11-year High, Wells Fargo Survey

January 26, 2018, 07:30 AM

Filed Under: Economy

Related: Economy, Small Buiness, Wells Fargo Bank, Wells Fargo/Gallup Small Business Index

Small business owners entered the new year feeling the most optimistic since early 2007, according to findings from the latest Wells Fargo/Gallup Small Business Index conducted January 3–9.

In the latest quarterly survey of small business optimism, the overall Index score came in at 107, up from 103 in November 2017, and the highest score since early 2007. A jump in the “future expectations” score – which measures how business owners expect their businesses to perform over the next 12 months – largely drove the improvement in optimism. In January, the score improved five points to 65, the highest reading since December 2006, the last time the “future expectations” score finished at 65.

“The economy ended 2017 on a high note, and many small business owners believe that strong momentum will carry over into 2018,” said Mark Vitner, Wells Fargo Managing Director and Senior Economist at Wells Fargo. “We are encouraged by the breadth of the improvement this past year, particularly in quantifiable areas like sales and overall finances. The more broad-based the gains, the more likely those gains will be longer lasting.”

In January, 52 percent of business owners reported their revenue increased a little or a lot over the past 12 months, up from 46 percent in November 2017 and the highest reading on this measure since 2007. The survey also showed that many business owners anticipate strong revenues in the year ahead, with 66 percent saying they expect their company revenues to increase over the next 12 months, which is the highest reading on this measure in the history of the survey. Other key drivers in the first quarter included:

Healthy cash flow outlook – Three-fourths (77 percent) of business owners expect their cash flow will be very good or somewhat good over the next 12 months, up from 73 percent in November 2017 and the highest reading on this measure in the history of the survey.
Improvements in capital spending – Thirty-eight percent expect the amount of money their business allocates for capital spending to increase a little or a lot over the next 12 months, compared to 33 percent in November 2017. This is the highest this measure has been since December 2003, when it was also 38 percent.
Ease of obtaining credit – Forty-six percent expect credit will be very easy or somewhat easy to obtain, compared to 45 percent in November 2017.
Continued hiring – A third (33 percent) of business owners expect the number of jobs at their company to increase in the next 12 months, up one percentage point from November 2017.

“Our latest survey tells us that small business owners feel better about the economy and the future of their businesses,” said Andy Rowe, head of Customer Segments at Wells Fargo. “We are encouraged to see more business owners forecasting strong revenues, healthy cash flows, and increased capital spending over the next 12 months. These trends tell us that small business owners are more positive about the economy, and that optimism is translating into investment in the future of their businesses right now.”

Small business owners rate presidential administration on key issues...

The administration generally receives high marks on economic issues affecting small businesses, but lower marks on non-economic issues, such as infrastructure improvements, international relations and healthcare reform.

In January, business owners were asked about the current presidential administration and its impact on their businesses. More than half of survey respondents (58 percent) said the current administration understands the issues that are important to their business and another 58 percent said the administration cares about these issues. Fifty-six percent said the administration prioritizes these issues, and 55 percent said the administration is effective at addressing them. When asked to give the current administration a grade on its performance on issues important to their business over the past year, about half (49 percent) gave the administration an “A” or “B,” and a quarter of respondents gave the administration an “F.”

When it comes to key issues impacting small business owners, 61 percent said the current presidential administration is doing a very good or somewhat good job of improving the overall economy, and 53 percent said the administration is doing a very good or somewhat good job of job creation. Looking at taxes, 50 percent said the current administration is doing a very good or somewhat good job on tax reform that impacts small business owners specifically, and 49 percent said it is doing a very good or somewhat good job on tax reform overall.i Regulation reform has been another key issue for business owners, and on the survey, 46 percent said the current administration is doing a very good or somewhat good job of regulation reform impacting small business owners.

However, on non-economic issues, small business owners said that the current administration is doing a very poor or somewhat poor job on healthcare reform (50 percent), international relations (45 percent) and infrastructure improvements, such as roads and bridges (38 percent.)

Small business top challenges...

In January, business owners were asked to identify the most important challenge facing their businesses today. Attracting customers and finding new business rose to the top of the list at 16 percent, followed closely by hiring and retaining high quality staff at 13 percent. Other top concerns this quarter included financial stability and cash flow (10 percent), taxes (10 percent), government regulations (7 percent) and competition/larger corporations/internet (7 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.