Business Owners Show First Real Signs of Improved Optimism
As published at tradingmarkets.com on Tuesday, December 7, 2010.
Business owner optimism is increasing, according to the most recent Wells Fargo/Gallup Small Business Index survey conducted November 4-10. Survey results show improved outlook for business owners over the next 12 months in revenues, cash flow and capital spending.
“After a year when optimism dropped to the lowest level in survey history, business owners appear to be turning a corner and looking ahead,” said Doug Case, Wells Fargo small business segment manager. “To support business owners as they begin focusing on growth, we have launched a new small business financial education website (www.wellsfargobusinessinsights.com) featuring an array of timely, relevant resources that can help them achieve their goals.”
Increased revenues over the past year also led to an improved overall Index score. The latest Index score came in at negative 4 (-4), a 24-point improvement over the previous quarter (July 2010) when the Index hit its lowest score in the survey’s history at negative 28 (-28). A score of zero indicates that small business owners, as a group, are neutral — neither optimistic nor pessimistic — about their companies’ situations.
“The improvement in optimism among small business owners appears to be more than statistical noise,” said Dr. Scott Anderson, Wells Fargo senior economist. “Better economic conditions including a strong lift in third quarter GDP — in particular new strength in consumer spending — are boosting small business owners’ perceptions for increased cash flows and revenues over the next 12 months. This improved optimism bodes well for the overall economy.”
The Index is the sum of “present situation” and “future expectations” of small business owners for six key measures, including financial situation , cash flow, revenues, capital allocation spending, job hiring and credit availability. The “present situation” score improved significantly this quarter to negative 19 (-19) from negative 26 (-26) in July 2010. “Future expectations” of small business owners jumped from negative 2 (-2) in July to a score of 15 this quarter, the highest future expectations score since Q3 2008.
The Q4 2010 results demonstrate an 11-point increase year-over-year for the overall Index score. Present situation and future expectations scores also show year-over-year improvements of five and six points respectively. Since its inception in 2003, the Index has reached a high of 114 in the fourth quarter of 2006 and a low of negative 28 (-28) in Q3 2010.
Index Score: Q4 2009 - Q4 2010 Overall Index Score Present Situation Future Expectations ------------------- ----------------- ------------------- Q4 2010 (surveyed -4 -19 15
November 2010)
—————– ——————- —————– ——————-
Q3 2010 (surveyed -28 -26 -2
July 2010) —————– ——————- —————– ——————-
Q2 2010 (surveyed -11 -22 11
April 2010) —————– ——————- —————– ——————-
Q1 2010 (surveyed -16 -29 13
January 2010)
—————– ——————- —————– ——————-
Q4 2009 (surveyed -15 -24 9
October 2009)
—————– ——————- —————– ——————-
Of the six key measures described above, the following served as the main drivers of the Index score during this survey period:
Future Expectations:
Capital Spending — 24 percent expect their companies’ allocation for capital spending to increase over the next 12 months, up from 17 percent in Q3 2010. Cash Flow — 50 percent expect their companies’ cash flow to be “very good” or “somewhat good” over the next 12 months, up from 43 percent in Q3 2010. Hiring — 18 percent expect the overall number of jobs at their companies to increase over the next 12 months, up from 13 percent in Q3 2010. Revenues — 44 percent of small business owners expect their companies’ revenues to increase a lot or a little over the next 12 months, up from 38 percent in Q3 2010.
Present Situation:
Revenues — 29 percent reported increased revenues over the past 12 months, up from 21 percent in Q3 2010.
About the 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 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 604 small business owners in all 50 United States conducted November 4-10. 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.
About Gallup
For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of people’s attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC | PowerRating) is a nationwide, diversified, community-based financial services company with $1.2 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia .com), and other distribution channels across North America and internationally. With more than 278,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked #19 on Fortune’s 2009 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.
Wells Fargo is America’s #1 small business lender (2009 Community Reinvestment Act government data) and a leading lender to women- and diverse-owned businesses. With the nation’s largest network of retail banking stores, and an award-winning online Business Insight Series including videos, webcast and articles, Wells Fargo provides business owners with timely advice and information to help them succeed financially. For more information, or to speak with a Wells Fargo banker, visit wellsfargo.com/biz or call the National Business Banking Center at 1-800-CALL-WELLS.
To find out more please visit New Wells Fargo Survey article.