Signs Of Life From Small Business Sector

A lousy economy coupled with a tight lending environment has made life especially tough for small businesses throughout the Great Recession, but a new Wells Fargo/Gallup survey suggests better times may be just around the corner.

The survey, which queried more than 600 small business owners during a one-week period last month, found that while most still have a negative view of their current situation, their outlook for the future was extremely upbeat.

This is especially good news considering most economists view the relative health of small businesses as a microcosm of the overall economy. When the bust hit, many of the folks who lost their jobs and sent the unemployment rate skyrocketing to nearly 10% nationally were victims of small businesses' contraction.

The Wells Fargo/Gallup Small Business Index, which combined the sum of small business owners' present situation and future situations to derive a composite score, checked in at a score of 12 with small business owners rating their present situation as a -10 and their future expectations at 22.

This marks significant improvement from the prior quarter when they garnered an aggregate score of -4 (-19 for current conditions and 15 for future expectations.)

"Small businesses are feeling much better about the economic recovery than they did two quarters ago," said Scott Anderson, a Wells Fargo senior economist. "These gains in optimism exceed the improvement we saw between August 2003 and March 2004 when the last economic recovery gathered some momentum and stronger job growth ensued."

Respondents said they based their optimistic outlook primarily on four factors: increased sales-- with 54% expecting either a little or a lot of improvement in the next year-- a resumption in hiring and better access to credit.

"The latest results demonstrate a return to positive territory for the Index -- and an important change in trajectory," said Doug Case, Wells Fargo small business segment manager. "The increased optimism is encouraging and we find that many business owners remain cautiously optimistic -- they’re keeping their doors open and looking for new business opportunities."

However, it's still far too early for small business owners-- or their large enterprise brethren for that matter-- to start celebrating, especially since most still assign a negative rating to their current business conditions.

From the perspective of most small business owners, the economy would best be described as incrementally less barren that it's been in the past few quarters.

Thirty-three percent of respondents said their cash flow was "somewhat" or "very poor" over the past 12 months, down from 38 percent who found themselves in similar straights in the fourth quarter.

And when it comes to jobs, 25% of small businesses said they had reduced their staffs "a little" or "a lot" in the quarter, down from 30% last quarter. Another 23% said they expected to increase their head count in the next year, up from 18% in the fourth quarter.

Perhaps most important, and an issue that still needs significant improvement if the overall economy is to sustain its modest recovery, 36 percent of small business owners said they still expect access to credit will remain "somewhat" or "very difficult" to obtain this year, down from 42% last quarter.

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