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U.S. Small Business Optimism Highest Since Early 2008

U.S. Small Business Optimism Highest Since Early 2008

by Coleen McMurray and Frank Newport

Story Highlights

  • Last time small business optimism was this high was in 2008
  • Owners are positive about current conditions and the future
  • Projections of increased jobs in coming year highest in seven years

PRINCETON, N.J. -- Small-business owners in the U.S. are more optimistic now than at any time since early 2008, according to the latest Wells Fargo/Gallup Small Business Index. The overall Index score rose to 58 in November, up from 49 in July. The Index was last this high in the first quarter of 2008 when it was at 83. Despite these significant gains, the overall Index is still well below pre-recession levels.

Wells Fargo/Gallup Small Business Index - Overall

These latest results are from the fourth quarter Wells Fargo/Gallup Small Business Index survey of small-business owners nationwide, conducted Nov. 10-14. The all-time high for the index over its 13-year history is 114, reached in late 2006, while the Index was at its all-time low of -28 in the third quarter of 2010. This increase shows that small-business owners are reacting positively to the same rising economic tides that have lifted overall economic confidence in the U.S. and optimism about jobs.

Small-business owners continue to be somewhat more positive about the future than the present, although both components of the index have risen steadily over the past two years. Owners' future expectations are now at 37, while the present situation rating is at 21. Both of these are, like the basic index, higher than at any point since the first quarter of 2008.

Wells Fargo/Gallup Small Business Index -- Present Situation/Future Expectations

Prospects for Increased Jobs at Small Businesses Improve

Small businesses are responsible for employing the vast majority of all workers in the country, with the Small Business and Entrepreneurship Council estimating that 90% of workers are employed at firms with 20 or fewer employees. Thus, it is an encouraging sign for the job market and U.S. economy overall that small-business owners' expectations about hiring over the next year are at their highest point since 2007.

The current survey finds that 26% of small-business owners say the number of jobs at their companies will increase in the next 12 months, while 8% say the number of jobs will go down. The resulting +18 in net staff increase this quarter compares with +10 last quarter when 20% anticipated an increased work force, and 10% said their staff would decrease. The low point in hiring plans occurred in 2008 when net hiring intentions were underwater, with 18% saying their workforce would decrease and only 14% anticipating an increase.

The current 26% who say their workforce will increase is within four points of the high on this measure recorded in 2006.

Overall Number of Jobs Next 12 Months

Financial Expectations and Anticipated Capital Spending Up

Small-business owners' expectations for their financial situations have been improving steadily and have returned to a level not seen since the first quarter of 2008. Currently, 71% of business owners expect their companies' financial situation in the next 12 months to be "very good" or "somewhat good," up from 50% just two years ago, and the highest since 2007. At the same time, 11% now expect their financial situation to be "very poor" or "somewhat poor," the lowest since 2007.

Financial Situation 12 Months From Now

Another positive indicator for the overall U.S. economy comes from small-business owners' increased expectations about making capital investments in 2015. Half of all small-business owners say they plan on making investments next year, up from 43% in 2013 and 41% in 2012.

Does your business plan any capital investments over the next 12 months ...

Bottom Line

The gains in small-business owners' optimism found in this quarter's Wells Fargo/Gallup Small Business Index mirror improvements in Americans' ratings of their overall economic confidence, workers' reports of job creation and the lower rate of U.S. unemployment. All of these indicators show an economy that is continuing to recover from the negative depths to which it descended in the years following the recession. Still, the over-time trend of the Small Business Index shows that small-business owners' optimism has a ways to go before it recovers to where it was in the pre-recession years of the last decade.

Survey Methods

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 601 small-business owners in all 50 United States conducted Nov. 10-14, 2014.

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.

For more information about Wells Fargo Works for Small Business, visit: Follow us on Twitter @WellsFargoWorks.

Learn more about how the Wells Fargo/Gallup Small Business Index works.

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