Are Small Business Owners Finally Optimistic?

It had to happen sometime. We’ve finally got someone saying that small business people are as bullish as they were before the recession. In January, the Discover Small Business Watch Optimism Index – a measure based on responses to a survey of business owners with 5 or fewer employees – hit its highest level since December 2007.

Thanks Discover, for the positive news. However, four other measures haven’t yet called small business owners as optimistic as they were in the Pre-Great-Recession era.

First, let’s look at the good news. The Discover Card optimism measure increased 9.4 points last month. Moreover, the share of small business owners who think the economy is improving jumped 6 percentage points, while the share who believe it is getting worse fell 10. And the share of small business owners who said that conditions for their own businesses are improving went up 6 percentage points, while the portion that said that conditions are worsening went down 5.

Unfortunately, Discover Small Business Watch isn’t the only measure of small business confidence, and the others are less upbeat. While the November 2010 Wells Fargo/Gallup Small Business Index – a biannual measure of small business confidence – rose 24 points to -4, it’s last reading was still below the level where as many small business owners are optimistic as pessimistic (zero). Moreover, the most recent score was below the level reached back in April 2009, shortly before the recession ended.

The Wells Fargo/ Gallup measure of small business owners’ expectations of the future stood at a solid +15, up from -2 at the previous reading, but was still not at its highest level since the recession began, having reached +20 in July 2008. Moreover, small business owners’ current assessment was -19, in negative territory and less than its July 2008 level, though up 7 points from half a year earlier.

In January, Sure Payroll reported that its Optimism Scorecard had increased again, with 66 percent of small business owners reporting a positive outlook. However, the scorecard is still well below the level it achieved back in June 2009 when 79 percent of small business owners said they were bullish.

The twice-a-year HSBC Small Business Confidence Monitor, which surveys 300 small companies with less than $30 million in yearly sales, showed confidence residing in positive territory in the fourth quarter of 2010 at a score of 108 (100 indicates neutral). But the measure was still down 12 points from its level in the second quarter of 2010. Moreover, the share of small business owners reporting that they expected local economic growth going forward fell to 14 percent from from 18 percent half a year earlier.

The granddaddy of all small business confidence measures, the National Federation of Independent Business (NFIB) Small Business Optimism Index, rose to 94.1 in January 2011, which is a good sign. However, the NFIB said this was “not a huge gain and not the hoped-for rebound that would signify more growth in the small business sector.”

In short, the pulse takers disagree about how optimistic small business owners are these days, and few think they are as optimistic as they were before the recession. Perhaps we should take solace in the fact that the surveyors no longer all agree that small business owner pessimism is at record levels.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

10 Reactions
  1. Our small business forms corporations & LLCs for other small businesses, and we’re seeing huge growth in terms of small businesses starting. They’re optimistic and they’re looking to grow quickly, so it’s exciting.

  2. Confidence may be increasing, but it is increasing under the new expectations created by the recent recession. Even the same optimism score from 2007 would be much more optimistic than that score today.

  3. I think small business owner optimism indices are lagging indicators. I find the overall trend quite positive, reflecting a small business economy that is no longer in recession, but well into recovery.

    I also think if you’ve survived the Great Recession, you gotta be feeling a least a bit better.

    Now if we can only do something about unemployment…

  4. The positives definitely seem to outweigh the negatives. However, I saw the recession as the perfect time to get started.

  5. All the surveys in the world are not telling you the whole story. As a small business owner the only reason why I had a sales increase and am optimstic about the future, is a direct response of my efforts.You have to look for the opportunties and learn to adapt as the claimate changes. Something our givernment, state or Federal can’t or won’t do. Our drive is what makes our economy move. Not the polls, it is the effort and resourcefulness of the small business owner that is making the difference.

  6. I no longer think NFIB is representative of what most small business people feel or think. Their agaenda has drifted so far right that their surveys reflect more of the anger common among tea partiers and others and less of the optimism and resourcefulness which characterize entrepreneurs. They are turning into the US Chamber–out of touch.

  7. As with many things, one should use multiple sources of data (quantitative and qualitative) to gauge. Are small business owners getting more optimistic? In my world, yes. When talking to businesses involved with the Chambers of Commerce, yes. I agree that resourcefulness and adaptability of entrepreneurs is what makes businesses successful.