Small Business Owners Surprisingly Optimistic About Economy

For the second month in a row, the Small Business Optimism Index has actually gone up, signifying that small business owners are feeling more optimistic about the economy and their own business prospects.

That’s a bright sign, in a sea of constant bad economic news.

Here’s the chart showing the 2-month rise in optimism:

small business optimisim index October 2008

The Optimism Index is part of the Small Business Economic Trends Report for October 2008. The report is put out monthly by The National Federation of Independent Businesses (NFIB) here in the United States. Each month the NFIB surveys small business owners to get a sense of how fiscally “optimistic” they are.

As you can see from the chart, the past year has been darn ugly.  Optimism among small business owners had dropped to historic lows over the past 22 years, since 1986. Yet, incredibly, in the midst of the worldwide credit crisis and wild stock market swings, optimism started rising in the past two months.

The report commentary by William Dunkelberg, the NFIB’s economist, is worth reading.  He puts the current economic situation in perspective, so let me reproduce part of his words here. First he recites the economic uproar that has been going on for the past month.  He suggests it’s time for everyone to calm down and stop predicting the end of the world:

” … if the drum beat of recession, depression, global catastrophe are eliminated from the vocabulary of regulators and the media, some sanity may be restored to expectations.”

But here are the real gems, describing economic conditions for small businesses and suggesting it might be a sign that the economy is bottoming out:

“While all this was going on, small business owners found a way to become more optimistic again, a two month run in improved sentiment (hopefully turning into a trend). Expectations for the economy and firm performance have improved substantially and if this translates into more hiring and spending, the economy can bottom out. Though spending and hiring measures remain weak, they are improving.”

He goes on to say that inflation will continue to be a problem, although it is less of problem in America now that gas prices are falling so dramatically. And for small businesses, unlike larger organizations, getting credit is not as big an issue as weak sales, taxes and inflation:

“Inflation pressures are abating as the percent of owners reporting higher selling prices continues to fall, but remains too strong to reach Federal Reserve policy targets. Lower gas prices will blunt headline inflation, but core inflation will be stubbornly high. Poor sales, taxes and inflation, not credit, remains a top concern for owners. And, the fall in oil prices to the $80 level represents a huge “tax cut” if they stick. Less money spent at the pump will mean more spending on Main Street (or more saving and debt reduction).”

So there you have it as seen through the eyes of small business owners: a few bright signs. It’s too early to tell if they are a trend. Let me point out that some of the worst fears gripping Wall Street and in the credit markets occurred AFTER small business owners were polled for this report.  So it’s possible we could be rudely surprised with the November report.  But at least from this report, things are looking a little brighter for the small business market.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.