Small business owners’ optimism has fallen in the wake of the presidential election.
The latest Wells Fargo/Gallup Small Business Index showed the optimism level had plunged to -11 in November from +17 in July. Despite what appeared to be a trend of improving small business optimism leading into the presidential election, this is the most pessimistic that owners have been about their operating environment since July 2010, when the index stood at -28.
These survey results indicate a possible weakening of the U.S. economy. The decline in small-business owners' future expectations is disproportionately responsible for the plunge in the overall index. Owners' expectations for their financial situation, cash flow, capital spending, and hiring over the next 12 months all worsened significantly in November.
One in five small-business owners (21 percent) expect the number of jobs at their company to decrease over the next 12 months, the highest percentage Gallup has measured to date. One in three owners (34 percent) expect their company's capital spending to decrease over the next 12 months -- the highest recorded since July 2010.
Thirty percent of owners expect "poor" cash flow over the next 12 months–the highest Gallup has measured to date. Twenty-eight percent of owners expect to be in a "poor" financial position 12 months from now, the highest Gallup has measured to date.
Small-business owners' ratings of their current operating conditions also declined in November, with the Present Situation Dimension of the index falling nine points to -10. This suggests that small-business owners as a group have gone from being essentially neutral about their current operating environment to being pessimistic. Owners were also pessimistic about their operating environment a year ago, when this dimension stood at -11.
As entrepreneurs, small-business owners tend to be optimistic by nature, and relatively more optimistic about the future than the present, Gallup noted. Given this context, owners' increasing pessimism toward their future not only reflects uncertainty, but also may imply a weakening economy going forward.
The business owners' intent to reduce capital spending in the months ahead is consistent with a slowing economy. Small-business owners appear to be uncertain about their future operating environment, and uncertainty is a legitimate reason for them to hold back on new capital expenditures at this time.
Another troubling finding is the intention of 21 percent of small-business owners to reduce the number of jobs at their company over the next 12 months. This suggests the potential for a significantly higher unemployment rate in 2013 and all of the accompanying negatives that fewer jobs imply for the economy -- particularly given the importance of small-business hiring to the U.S. job market.
Overall, the Wells Fargo/Gallup Small Business Index survey results suggest the U.S. economy is extremely fragile and possibly susceptible to another recession. Policymakers need to keep this acute fragility in mind as Washington struggles to avert the "fiscal cliff," Gallup noted.