Gauging Small Business Owners' Confidence

Most results of small business surveys released at the end of 2008 were bleak, showing respondents continue to struggle with a bad economy

Even as retailers suffered and the stock market closed out one of its worst years, the December Discover Small Business Watch showed a slight uptick in optimism among small business owners compared with November results, when confidence levels hit their lowest marks ever.

The December measure of relative economic confidence rose to 21%, up six points from November but only slightly higher than the previous low of 20% recorded by the survey. Just over half—51%—of respondents said they felt business conditions were getting worse. That figure is slightly down from the 54% recorded in November, said Ryan Scully, director of Discover's (DFS) business credit card. Commissioned by the Discover Business Card, the survey recorded responses about economic conditions from 1,000 business owners with fewer than five employees.

"Since the beginning of 2008, the index has trended down. With the turn of the new year, there seems to be some cautious optimism, but we've seen the numbers teeter-totter up and down over the year, with a previous spike in August," Scully said.

"Worst-Ever" Records Set

It's hard to say whether the slight upturn in confidence is the beginning of a trend or just reflects relief that 2008 was coming to a close, he said. Other possible causes for optimism include starting a new year, hoping for better stock market performance typical of January, and a new Presidential administration promising a large economic stimulus package.

Also, as we found last spring, it's notoriously difficult for a survey to accurately gauge the mood of small business owners as a whole, since they're such a large and amorphous group. How a question is phrased and to what sub-set of small business owners it is posed can make a big difference in a survey's outcome.

Whether or not small business owners are beginning to feel more optimistic, most small business survey results released in the final weeks of 2008 reflected a grim reality. The Small Business Poll of more than 800 business owners published in December by the National Federation of Independent Business Research Foundation was notable for the number of worst-ever results it reported. For instance, the number of small business owners reporting higher sales in the previous three months plunged 25%, the lowest response in the survey's 35-year history; the reports of declining sales were the largest in the survey's history; and the number of owners who said they planned to create new jobs in the next three months fell 4%, one of the worst numbers in the survey's history (the only times the numbers were lower were during the 1974-75 and 1980-82 recessions).

Borrowing Needs Largely Met

The Discover survey showed that 69% of small business owners think the economic recovery will take at least 12 months. Still, 24% said they planned to increase spending on business development in the next six months, an increase from the 20% who responded affirmatively to that question in November. And while 51% in November said they planned to decrease business spending, fewer—47%—said the same in December.

Only 12% of survey respondents said they felt the economy was getting better, which seems like a very low number, Scully said, but it is the highest response rate the survey has gotten to that question since August 2008.

Despite the reports of tightened credit availability, only 7% of those surveyed listed financing and credit as their biggest business problem, Scully said. The NFIB data backed up that finding: 31% of respondents to that survey said that all their borrowing needs had been met, compared to 7% who reported problems obtaining funding.

The majority of respondents in the Discover survey—30%—cited decreased sales as their most worrisome trouble, followed by higher operating costs (23%) and 17% who cited taxes. Nearly one-fifth of the entrepreneurs surveyed (17%) said their companies had not been under stress in the past year.

The bright spot in the drumbeat of bad survey news came in hiring. More than two-thirds of small businesses surveyed by TriNet, a human resources consultancy with headquarters in San Leandro, Calif., said they planned to hire new employees in 2009. The November TriNet HR Trends survey also showed that 80% of the 500-plus respondents tried to make new hires in 2008, either to handle new growth or to make up for attrition.

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