Conflicting Research Leaves Doubt Over Small Business Confidence

After months of record highs, small business optimism has apparently begun a downswing — or has it?

The latest research on the topic reveals a multifaceted view of small businesses’ economic and financial outlook in the U.S., with conflicting findings illustrating how complex the picture of SMB financial health is today.

Earlier this month the Wall Street Journal reported a decline in small business optimism in the U.S. for the forth month in a row, citing National Federation of Independent Business analysis. The highs of the NFIB’s Small Business Optimism Index were “astounding” last summer, according to NFIB President Juanita Duggan, but have finally begun to drop, though analysts emphasized that optimism remains strong among entrepreneurs.

“Over the past few months, owners’ expectations for the future have tempered, while reporting continued solid economic activity,” the NFIB stated, reports said. “The Index remains at historically high levels but can’t be expected to improve every month.”

But financial concerns appear to be rising for small business owners, with researchers pointing to rising credit card debt, trade disagreements, and rising federal deficit likely playing a factor in the NFIB’s finding that fewer small business owners say now is a good time to expand their business.

Separate research published Tuesday (Jan. 15) from Balboa Capital found in its own Q1 2019 small business owner survey that economic confidence is strong, and is expected to remain as such for the year ahead.

Overall, 84 percent of small businesses surveyed by Balboa say economic growth in the U.S. was strong last year, and the majority plan to increase their capital investment budgets this year. Most also plan to hire more employees, and expect moderate to strong growth in 2019.

Just one day later, however, Marketplace released a new report highlighting the declining confidence of small business CEOs, pointing to a new survey that found SMB confidence levels have returned to where they were just before the 2016 election.

Marketplace cited data from Vistage and the Wall Street Journal, whose Small Business CEO Survey published earlier in the month found most CEOs expect economic growth trajectories to stagnate this year, while one-third expect the economy to decline (only 15 percent are anticipating improvements).

“Just 55 percent thought the economy had recently improved,” said Joe Galvin, chief research officer for Vistage Worldwide, in an interview with Marketplace. “That’s a 20 point drop from from last quarter, so a very sudden reversal.”

According to reports, rising interest rates and wages are among the biggest concerns for small business owners today, as well as ongoing trade disputes and the partial government shutdown, which is now the longest in U.S. history.

Reports in USA Today last month warned that as many as 30 million small businesses in the U.S. could be impacted by the government shutdown, particularly businesses seeking a loan from the Small Business Administration. Earlier this week House Committee on Small Business Chairwoman Nydia M. Velázquez (D-NY) called on President Donald Trump to restart the SBA’s lending program.

The heightened political uncertainty related to the government shutdown and ongoing trade dispute comes at a time when small businesses are also increasingly concerned about a tight labor market. Research from Bank of America released last month found that while 80 percent of small business owners anticipate their year-end revenues to be higher in 2018 than 2017 — and most expect revenues to increase in 2019 — only 27 percent said they plan to hire staff this year.

Nearly one-quarter of small businesses surveyed said employee turnover has impacted their firms, with a limited talent pool making it more difficult to act on expansion plans.

It’s a significant contrast to Balboa Capital’s finding, which revealed 55 percent of SMBs plan to hire more employees this year.

“This private sector optimism is great news for the new year and our nation’s economy overall,” said Carla Freberg, director of sales, Vendor Services Group at Balboa Capital, in a statement. “Hearing that small business owners have a favorable view of the current economic climate and are planning to invest in their companies are promising indicators of potential growth for small businesses in 2019.”