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Small Business Optimism Takes a Nosedive Post-Election

December 13th, 2012 ::

By Maria Valdez Haubrich

The recent presidential election seems to have put small business owners into a tailspin—at least, it has if the latest Wells Fargo/Gallup Small Business Index is any indication. In November (post-election), the Index dropped to -11, down from 17 in July. Entrepreneurs have not been this pessimistic about their businesses since July 2010.

The Index measures small business owners’ current feelings about their businesses, including financial status, ease of getting capital and credit, sales, cash flow, number of jobs. In the first two quarters of the year, small business owners were becoming increasingly optimistic, and the Index hit a high of 23 in May. (For comparison, before the Great Recession hit in 2008, the Index was almost always above 100.)

In November, small business owners’ future expectations for their financial situation, cash flow, capital spending and hiring during the next 12 months all worsened significantly, Gallup says. Specifically:

  • One in five small business owners (21 percent) believe the number of jobs at their company will decrease over the next 12 months. That’s the highest percentage Gallup has measured since the Index began in 2003.
  • One in three (34%) predict their company’s capital spending will decrease over the next 12 months — the highest percentage since July 2010.
  • Some 30 percent of small business owners expect “poor” cash flow during the next 12 months — the highest Gallup has measured to date.
  • Some 28 percent expect to be in a “poor” financial position 12 months from now — the highest Gallup has measured to date.

While future expectations were primarily responsible for the overall drop in the Index, the small business owners’ assessments of their current operating conditions also declined in November, falling 9 points to -10.

The results suggest small business owners, who were previously fairly neutral about current operating conditions, have become pessimistic not only about the future but the present as well.

“As entrepreneurs, small-business owners tend to be optimistic by nature, and relatively more optimistic about the future than the present,” Gallup’s results note. Will the small business owners’ outlook lead to a weakened economy going forward? If small business owners live up to their plans to cut capital spending and reduce the number of jobs at their companies, it could do so.

How do you feel about the results? Do they jibe with your outlook?

Image by Flickr user M Hildingh (Creative Commons)

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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