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U.S. Small-Business Owners' Optimism Down From Record High

U.S. Small-Business Owners' Optimism Down From Record High

by Frank Newport and Coleen McMurray

Story Highlights

  • Small-business owners' optimism, while still strong, has declined
  • Owners cite hiring as a top challenge
  • Cash flow and revenue are strong drivers of decline

WASHINGTON, D.C. -- U.S. small-business owners are less optimistic about business conditions now than they have been over the past year. The Wells Fargo/Gallup Small Business Index, which measures small-business owners' attitudes about a wide variety of factors affecting their businesses, is down to +106 in Quarter 1, 2019, from the record high of +129 set in Quarter 4, 2018. The current drop erases the gains in confidence seen in the last two quarters of 2018 and returns the index to where it was from Quarter 3, 2017, through Quarter 2, 2018.

Line graph. The Wells Fargo/Gallup Small Business Index stands at 106, down from the record high 129 in Q4 2018.

The current survey of small-business owners was completed Jan. 9-15, 2019 -- during the partial government shutdown. This quarter's decline was fueled by a drop in items related to small-business owners' optimism about their current financial situation, as well as a drop in their overall future expectations. Additionally:

  • 45% of owners reported that their revenues increased "a lot" or "a little," down significantly from 55% last quarter.
  • Fewer owners now (55%) than in the previous quarter (62%) expect their revenue to increase "a lot" or "a little" in the coming months.
  • Owners also became more negative when assessing their current cash flow -- with 66% saying it is "very" or "somewhat" good compared with 74% last quarter.

Financial Preparedness for a Potential Economic Downturn

The survey also explored small-business owners' views of their preparedness should there be an economic downturn or recession.

Owners are generally optimistic about their ability to weather new economic problems. More than three-quarters of owners (77%) reported being either "very" (25%) or "somewhat" (52%) prepared to handle a downturn.

Nearly seven in 10 owners reported owning their business 10 years ago during the recession. Among this group, 75% said they were better prepared if an economic downturn occurs now than they were over 10 years ago.

Asked what lessons they learned from the experience of living through the previous recession, owners were most likely to say they were more careful and more frugal with their business in terms of spending and credit (19%). Other owners cited the need to build up savings or capital in reserve (12%), anticipatory planning should a recession materialize again (9%), and keeping the business viable by focusing on growth, customer service and staying competitive (8%),

Lessons Learned From Prior Recession in 2008
"What would you say is the greatest lesson you learned about running a business during the economic recession of over 10 years ago? *Answers based on those who say they owned their business over 10 years ago
Quarter 1, 2019
Be careful with spending; How much credit you extend to clients; Capital management; Being conservative/frugal 19
Always have a little money held back; Capital in reserve; Cash flow 12
Good planning/back-up plan; Keep eye on economy 9
Take care of business/growth; Focus on customer service; Stay busy; Work hard; Stay competitive 8
Don't borrow money; Do not get credit; Don't carry debt 6
Understanding uncertainty; Be flexible; Ability to adapt 6
Ride it out; Hang in there; Don't panic; Perseverance 5
Keep overhead/operating expenses low; Lower number of employees 5
Being smart/careful; Making wise decisions/investments; Minimize risks; Don't over expand 4
More diversification of products/services; Diversification of clients 3
Don't rely on government; Don't trust government/politicians; Know government regulations 3
Act swiftly; Efficient use of time 1
Good inventory control is important; Don't over-stock/under-stock 1
Stay the course; Consistency 1
Other 6
None; N/A; Nothing 5
Don't know/Refused 6
Wells Fargo/Gallup Small Business Index, Jan. 9-15, 2019
Wells Fargo/Gallup Small Business Index

Despite the decline in their overall optimism about their business, when asked to think more broadly about the economy, two-thirds of owners say that 2019 will be a year of economic prosperity rather than a year of economic difficulty.

Circle graph. Sixty-seven percent of small-business owners say 2019 will be a year of economic prosperity, 29% difficulty.

Bottom Line

Amid a government shut-down, small-business owners' financial optimism has declined significantly from the high points reached last year, although optimism is still well above the levels measured in the years during and after the recession. Despite the continued health of the economy based on government indicators, owners this quarter are significantly less likely than previously to give positive ratings to their revenues and cash flow.

The majority of small-business owners were in charge of their businesses during the recession ten years ago, and they clearly learned from that experience. Among those who owned their business at that time, many reported they have become more careful with their business finances. Three-quarters of owners who had their businesses during the recession say they feel better prepared for another downturn now than they were then.

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