Why Small Businesses Are Gaining Confidence

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Creating jobs, innovating and growing communities are just a few of the major roles that small businesses play in our economy. While owning and operating a small business can be difficult, it appears that owners are becoming increasingly optimistic about their prospective futures.

The confidence of small businesses owners continues to rise, according to the latest CNBC/SurveyMonkey Small Business Survey for the second quarter. The survey’s Confidence Index reading of 59 (up from 58 in the first quarter 2019) indicates that small businesses are optimistic about the direction of their business over the next 12 months. The survey for Q2 included responses from 2,100 small business owners across the country collected between April 15 and April 22.

“Businesses are feeling pretty good, the economy is doing well, and confidence is still at high levels,” said Todd McCracken, president and CEO of the National Small Business Association.

Two key survey questions showed the most confidence since Q3 2018. Fifty-six percent of small business owners describe business conditions as good, while 60% say they expect revenue to increase in the next year. The percentage of small business owners who expect revenue to decrease (6%) is at its lowest level since Q1 2018. The percentage of owners who describe business conditions as bad (5%) also was a low in the survey’s history.

The largest businesses (those with 50 or more employees) are particularly optimistic, with 77% describing business conditions as good and only 1% saying conditions are bad.

While the optimism is rising, The Small Business Confidence Index reading of 59 is still three points lower than its all-time high of 62, which was recorded in both Q1 2018 and Q3 2018.

 

Tax cuts, job market keep confidence off record

 

The stock market has been riding high for most of 2019. The Fed is signaling that conditions in the economy remain strong, but it has no current plans to raise rates, which could dampen enthusiasm. However, small business confidence has not yet hit its 2018 record level. Benefits from the 2017 tax cuts and competition for workers are likely the main factors weighing on small business outlook.

“Most small companies know they are temporary, and some are already getting close to beginning to phase out,” McCracken said. “With a divided power in Washington, businesses know that not much is going to happen to change that. Congress has to take proactive action to make sure those tax cuts stay in place beyond the next two to three years.”
The percentage of small business owners who said tax policy will be a positive for their business over the next 12 months fell to 28%, the lowest level in the history of the survey. Business owners saying tax policy will be a negative for their business over the next 12 months rose from 29% to 35% in Q2. Thirty-nine percent of small business owners expect no impact from tax policy.

He said the labor market is an inevitable by-product of the strong economy. “This is the nature of a strong economy — when you are at full employment, this is what happens.”

The majority of small businesses do not expect to either increase or decrease full-time staff (63%), a number that has moved between a low of 59% in Q3 of last year, and a high of 64% last quarter.

“The unique problems businesses face are greater. Large companies have more ability to survey the marketplace and find people, but small businesses have an information gap in terms of finding employees and employees finding them, McCracken said. “A lot of small companies have to train their workers which is a big investment. If they leave in a year or six months, businesses don’t get that repaid.”

Sixty-five percent of businesses with 50 or more employees say they expect to increase staff in the next year, versus only 19% of firms with four or fewer employees. The biggest gap exists between the smallest and largest small businesses. Among businesses with five to nine employees, 46% expect to increase staff; 44% of business with between 10 and 49 employees expect to add staff.

Small businesses make up a significant amount of our labor economy, so it’s reassuring to know that owners are optimistic about their businesses growth.