U.S. Small-Business Owners' Hiring Intentions Plunge

PRINCETON, NJ -- U.S. small-business owners expect to add fewer net new jobs over the next 12 months than at any time since the depths of the 2008-2009 recession, according to this November's Wells Fargo/Gallup Small Business Index survey. Small-business owners' net hiring intentions for the next 12 months plunged to -4 in November, down from +10 in July and matching the previous record low recorded by the Wells Fargo/Small Business Index of -4 in November 2008.

The Wells Fargo/Gallup quarterly survey was conducted Nov. 12-16, 2012, with a random sample of 607 small-business owners. The same survey found small-business owners are increasingly pessimistic about their businesses' current situation and their expectations for the next 12 months.

Historically, net hiring intentions have tended to be very positive, with small-business owners expecting to grow and hire more new employees than they will let go over the next 12 months. In good economic years, net hiring intentions have been in the double-digits. This has not been the case since the recession and financial crisis in 2008-2009 with net hiring intentions reaching a low of -4 in November 2008. There was considerable improvement in small-business owners' hiring expectations during much of 2012, prior to the recent November plunge, but now expectations have deteriorated to tie the low recorded in 2008.

In November, 21% of owners say they expect to decrease jobs at their companies over the next 12 months, the most recorded on this measure since the inception of the Wells Fargo/Gallup Small Business Index in August 2003. At the same time, 17% of small-business owners say they expect to increase the number of jobs or positions at their companies, down from 20% in July of this year and the lowest level measured since November 2011. Net new hiring intentions are calculated by subtracting the expected decrease in jobs from the expected increase in jobs. Typically, the majority of small-business owners say they do not expect the number of positions at their company to change. In the current survey, 61% expect no change in workforce size.

Owners' Net Hiring Down Over Past 12 Months

In addition to asking about future hiring intentions, the survey also asks small-business owners to report on hiring over the past 12 months. In November, more small-business owners reported decreasing the number of employees (26%) than increasing (14%), resulting in a net hiring score of -12. That is down from -7 in July and -9 in the prior three quarterly measurements. Net hiring over the past 12 months is about where it was in July 2011, at -11. This lack of improvement in small-business owners' self-reported hiring helps explain why too few new jobs have been created during much of 2012 to significantly lower the U.S. unemployment rate.

The 14% of small-business owners who in November reported increasing their company hiring over the past 12 months is unchanged from July. However, the 26% reporting a decrease in the number of job positions at their businesses over the past 12 months is up from 21% in July, and is the highest level since November 2010. Small-business owners' self-reported hiring suggests deteriorating job growth over the past year, but not nearly as severe a decline as is implied by owners' hiring expectations for the next 12 months.

Implications

The quarterly Wells Fargo/Gallup Small Business Index survey conducted in November shows small-business owners are pessimistic about their operating environment as 2012 comes to a close. As a result, owners' intentions are to reduce capital spending over the months ahead, consistent with a slowing economy. Further, one in five owners also expects to reduce the number of jobs at their company over the next 12 months.

That net hiring expectations at the nation's small businesses have declined to levels last seen in late 2008 is reason for concern. Such low net hiring expectations were followed by massive layoffs in early 2009. While a repeat of that experience seems unlikely in 2013, there is the potential for a serious decline in jobs early next year if small-business owners' hiring intentions do not improve.

Whether the pessimism of the nation's small-business owners is due to the fiscal cliff, Superstorm Sandy, the election, or some combination of these factors, the U.S. economy remains weak and unemployment remains high from a historical perspective. A further sharp increase in small-business layoffs, resulting in higher unemployment on top of the current economic conditions, could turn today's slow growing U.S. economy into something worse.

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 report.