Why Everyone's Happy When Small Businesses are Happy
In a year when bank lending to entrepreneurs seems to be returning to more normal levels, two recent bank surveys continue to point to an improving economic picture for small business owners.
The data shows small business optimism is generally improving, while small companies added jobs in a wide variety of industries, including construction, manufacturing, and business services.
The Wells Fargo small business survey for the third quarter, produced in collaboration with Gallup Inc. and released last week, is based on a numerical composite culled from the responses of 600 small business owners polled in July. It shows small business optimism overall at 49, up two points from the second quarter, and nearly double its score from the same quarter in 2013. But that's still a long distance from scores over 100 achieved regularly prior to the 2008 recession.
“The latest index scores show small businesses have made gradual progress since the economic downturn. With modest improvement in the economy, healthier small businesses are growing revenue and have stronger cash flow today,” Lisa Stevens, head of small business for Wells Fargo, said in a press release.
When considering prospects for the next 12 months, small business owner sentiment dropped slightly, notching 31 points, down two points from the second quarter, but up 10 points compared to the same quarter a year ago.
When asked to rate their current financial situations, 62 percent of entrepreneurs said it was either somewhat good or very good, an increase of five percentage points from the prior quarter. Seventeen percent rated it as either very poor or somewhat poor, a decrease of 3 percentage points from the second quarter.
Sentiment was not as bright looking ahead to the next year. While 66 percent of business owners rated their financial prospects as good, down a point from the previous quarter, 14 percent rated prospects as poor, which is flat compared to the previous quarter.
Similarly, while 43 percent of entrepreneurs said revenues had increased in the past year, up seven percentage points compared to the second quarter, 48 percent said they expected them to increase in the coming year. That's a decrease of three percentage points compared to the previous quarter.
For its part, PNC Bank released an assessment of July labor statistics from the Department of Labor, which showed an increase of 208,000 jobs for the month.
Here are some highligts:
- Construction jobs rose by 22,000, the seventh straight monthly increase.
- Manufacturing jobs rose by 28,000, the twelfth straight monthly increase.
- Professional/business services, including temp workers, added 47,000 jobs.
- Leisure and hospitality added 21,000 jobs.
- Education and medicine added 17,000 jobs.
"Industries such as construction, manufacturing, professional-business services, and education and medicine tend to pay wages higher than the national average, so the economy is adding good jobs," Gus Faucher, senior economist at PNC said in a statement.
Considering the remainder of 2014, Faucher's sentiment mirrored that of small business owners. Faucher said he thinks Gross Domestic Product growth, a measure of national productivity, will be 3 percent for the second half of the year. That's somewhat more sluggish than the 4 percent rate notched in the second quarter. The reason for the restrained performance, according to Faucher, is generally weak wage increases.