Growth Strategies

Maybe There’s No Pony, Small Biz Worries

Wells Fargo/Gallup optimism index shows a precipitous drop, and a fifth straight quarterly decline.
Stephen TaubMay 27, 2008

The pessimism among small business owners is deepening by the quarter.

A Wells Fargo/Gallup Small Business Index survey conducted in April — compiling ratings in the areas of financial situation, cash flow, revenues, capital allocation, job hiring, and credit availability — found that optimism ratings were lower for the fifth straight period. The score was the lowest level since the survey’s inception in August 2003.

Specifically, the index score dropped to 48 last month, a 35-point plunge from the previous survey, in January 2008, and 66 points off the index’s high score of 114 in December 2006. The 35-point drop is the largest quarterly decrease to date. In August 2003, the index score was 69.

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Results are based on telephone interviews with 600 small business owners nationwide.

The index scores record the sum of both current and future expectations of small business owners in the six key measurement areas. While each of the six continued to reflect a drop from the previous quarter, the most significant change was found in small business owners’ present-revenue situation and future expectations for cash flow and financial situation, according to the survey.

“The nearly-50-percent drop in the index clearly reflects the intensified financial pressures small business owners have felt over the last three months,” said Dr. Scott Anderson, Wells Fargo senior economist. “The decline in both the present situation and future expectations components doesn’t bode well for a swift recovery in small business conditions.

He asserted that as consumers begin to receive and spend their economic stimulus checks, that should soon begin to ease the blow to small businesses, perhaps in the third quarter of this year.

Interestingly, despite the drop in overall optimism survey respondents said they feel satisfied being small business owners. Satisfaction levels were relatively unchanged from January, when 94 percent of respondents said they felt successful being a small business owner.

For the last 19 quarters, the Wells Fargo/Gallup index has surveyed small business owners on current and future perceptions of their business financial situation. The index consists of two dimensions: owners’ ratings of the current situation of their businesses and owners’ ratings of how they expect their businesses to perform over the next 12 months.