While economists drone on about US economic indicators, such as 5% unemployment combined with slowing growth in jobs, low inflation, and a near record-high stock market, the small business people on the ground know that times are still tough. Just how tough can be gleaned from current surveys on small business optimism—which show a slightly gloomier outlook in May of 2016 than at the start of the year, and are down significantly from the start of 2015.

The following two surveys paint a similar picture.


NFIB Small Business Optimism Index

Each month, the The NFIB (National Federation of Independent Businesses) Research Foundation has published the Small Business Optimism Index—a measure of how small business owners feel about current business conditions and the outlook for the upcoming six months.

The index is comprised of ten components: plans to increase employment (+1 point for May), plans for capital outlays (-2 points), plans for increasing inventory (-1 point), expectations for economic improvement (+5 points), expectation for higher retail sales (unchanged), current inventory (+1 point), current job openings (-2 points), expected credit conditions (unchanged), whether it is a good time to expand (+1 point), and earnings trends (-1 point).

The index rose two tenths of a point in May 2016, well below the overall historical average of 98 (from 1974 through the present, which includes “Great Recession” data). Four of the 10 Index components posted a gain, four declined, and two were unchanged. One good sign is that “Expected Business Conditions” rose five points, indicating that optimism may be ready to turn the corner and head up. However, it is still 9% lower than it was last year at this time.

Another notable finding is that problems in the labor market persist. 56% of small business owners reported attempting to hire new employees (3% up from April), while 48% reported being unable to find a qualified person for the position they were trying to fill.

That may explain why “Quality of Labor” was fourth on the list of most important business problems in the May report. First on the list of most important problems was taxes, followed by government regulations and red tape, and poor sales– an order that has not changed for over a year.

Read the full May 2016 Small Business Optimism Index Report here.


Wells Fargo/Gallup Small Business Index

The quarterly Wells Fargo/Gallup Small Business Index survey provides a similar picture of small business optimism as the NFIB index does. The quarterly survey of 600 small business owners measures optimism based on cash flow estimates, financial situation, company revenue, capital spending, hiring, and ease of obtaining credit. The respondents are asked about both their rating of their current situation and how they expect their business to perform over the next 12 months.

The Q2 2016 report, conducted in April, fell 3 points to 64, after rising to 67 in January 2016. (For historical context, the index topped 100 in the pre-recession 2005-2007 time frame, fell into negative territory during the “great recession” in 2009-2010, and climbed over 60 for the first time in January 2015. The highest Index reading was +114 in the fourth quarter of 2006, and the lowest reading was -28 in the third quarter of 2010.) Interestingly, the current situation score is typically about half the future outlook score. Thus, for April respondents rated their current situation at 24 and their future expectations at 40.

Top small business owner concerns were similar to the NFIB index, with the top rated issue being attracting new customers and business growth (16%), economy (10%), government regulations (10%) and hiring and retaining quality staff (9%).

The Q2 survey also asked small business owners about the upcoming presidential election. 69% thought that the presidential candidates were not addressing the issues that were important to small business owners, while only 28% thought those concerns were being addressed. The top concern cited was taxes (83%), followed by economic policy (77%) and healthcare (73%).

Get the report details: Study report, full study data, key findings infographic


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Lisa Hephner

Lisa Hephner

My name is Lisa, and I'm the Vice President of Knowledge, responsible for the management of corporate, product, competitor, marketplace, legal, and regulatory knowledge, and creation and dissemination of knowledge tools using these assets to PaySimple prospects, customers, employees, and partners.

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