OREANDA-NEWS. After reaching a seven-year high in January, small business owners are feeling less optimistic today than they were a year ago, according to the latest Wells Fargo/Gallup Small Business Index, conducted November 9

In the quarterly small business survey, which measures small business owner optimism, the overall Index score dipped from 59 in August to 54 in November, representing the lowest score since July 2014. It’s also the third quarter in a row that the score has dropped after starting the year at 71.  A major contributor to this year’s decline is a drop in the number of business owners reporting increases in company revenue. This quarter’s score also was driven by a combination of incremental declines in business owner perceptions of their financial situation, capital spending, and hiring.

“This has been an unusually slow economic recovery for everyone, and small business owners are certainly feeling that,” said Mark Vitner, Managing Director and Senior Economist for Wells Fargo Securities. “With the economy growing as slowly as it has been, it’s been difficult for many business owners to increase their sales, and this has been particularly burdensome for firms who have seen expenses rise, including healthcare costs. As a result, many have been reluctant to invest in equipment, expand their operations and hire staff, even as business owners in general have seen gradual improvement in their financial situation and cash flow over the last few years.”

Company revenue is a measure that changed significantly since January. Thirty-nine percent of small business owners reported that their company revenues increased a little or lot in the last 12 months, which is a 10 percentage point drop from the first-quarter survey. Looking ahead, 47 percent of business owners expect their revenues to increase in the next 12 months compared to 55 percent at the start of the year.

Most other Index measures had small declines or saw no improvements in the fourth-quarter survey including:

  • Financial situation – When asked about their financial situation, 65 percent of small business owners rate it as very or somewhat good, essentially unchanged from a year ago (64 percent) and the same score as the previous three quarters.
  • Capital spending – Twenty-six percent of small business owners said their company increased the amount of money allocated for capital spending in the past 12 months, essentially unchanged from 27 percent a year ago.
  • Hiring trends – Seventeen percent of business owners increased the number of jobs at their company in the last 12 months, essentially the same as what business owners reported a year ago (18 percent). When asked about hiring plans in the next 12 months, about a quarter (26 percent) said they plan to increase the number of jobs at their company, unchanged from a year ago.

In the November survey, business owners were also asked about their use of credit, including credit cards, lines of credit and other loans, with 38 percent saying that they have less debt now than they did a year ago, compared to 26 percent when the question was last asked in April 2013.

More business owners reported being comfortable with the amount of business debt they currently carry (40 percent), up from 29 percent in April 2013. Just 10 percent of business owners expressed difficulty paying down their current business debt, compared to 18 percent in April 2013 and 20 percent in April 2012.

Business Owner Challenges

When asked to identify the most important challenge they face, business owners cited several concerns. Business owners said their biggest concern was government regulations (13 percent) – the highest percentage since the question was first asked in the second quarter of 2013. This challenge was followed by attracting customers and finding new business (11 percent), and hiring and retaining quality staff (10 percent). These three challenges have been consistently reported as the top concerns of small business owners since early 2013.

Small Business Index Key Drivers

Wells Fargo and Gallup survey small business owners across the nation each quarter to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability.

Wells Fargo/Gallup Small Business Index Scores: Q4 2014– Q4 2015

  Overall Index Score Present Situation Future Expectations
Q4 2015 (surveyed November 2015) 54 21 33
Q3 2015 (surveyed July 2015)
59 23 36
Q2 2015 (surveyed April 2015)
64 24 40
Q1 2015 (surveyed January 2015)
71 28 43
Q4 2014 (surveyed November 2014)
58 21 37

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 606 small business owners, with annual revenues up to $20 million, in all 50 United States conducted November 9-13, 2015. 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. The highest Index reading was +114 in the fourth quarter of 2006, and the lowest reading was -28 in the third quarter of 2010.