While the unemployment rate is near prerecession levels, headwinds are still making the overall economy feel choppy.
That's according to the latest reading of business owner confidence, which dipped again in the fourth quarter of 2015. It marks the third consecutive quarter this year that the sentiment of entrepreneurs has dimmed, according to the latest small business index released on Monday by Wells Fargo and Gallup. The current rate of optimism is at 54, down five points from the third quarter, and 10 points from the second quarter. The fourth quarter reading also represents a 17-point decrease from the first quarter of 2015.
“The confidence number suggests that businesses are continuing to see their margins get squeezed, and their costs are going up faster than top-line revenue,” says Mark Vitner, managing director and senior economist for Wells Fargo Securities.
Vitner adds it’s hard for business owners to get excited when annual gross domestic product has been growing at an unexciting 2.5 percent for years. Tack on waning consumer sentiment--the latest Conference Board consumer confidence survey puts consumer optimism at 90, down nine points from its Ocotber reading--and it's hardly surprising owners aren't feeling super positive right now, Vitner says.
Wells Fargo uses a composite numerical score to create its quarterly index. And the current readings are far lower than the three years leading up to the 2008 recession, when optimism was generally more than 100 annually. Meanwhile, looking ahead, entrepreneurs’ expectations for the future are also diminished. The index reading of 33 decreased three points from the third quarter and it decreased 10 points from the first quarter.
Among business owners' top concerns constricting growth are the impact of government regulations, noted by 13 percent of business owners. Attracting customers and business opportunities was next, reported by 11 percent of entrepreneurs; and hiring and retaining enough qualified staff came in third, as noted by 10 percent of respondents. Seeming to buck the trend of other recent surveys, a scant 2 percent of respondents said health care, and specifically the Affordable Care Act, was a major impediment.
Despite the challenges that entrepreneurs say they have around hiring, more business owners said they plan to hire in the upcoming 12 months, with 26 percent reporting plans to increase staffing, a three percentage point jump up compared to the third quarter. In tandem with that reading, 9 percent of repsondents said they planned to decrease head counts at their companies in the next 12 months, which represents a decrease of two percentage points, compared to the third quarter.
One reason business owners may be inclined to hire is that, depsite decreasing optimism, the financial picture of business owners is essentially solid, Vitner says. Roughly 63 percent report good cash flow prospects in the coming year, according to the survey. That rate is up two percentage points, compared to the third quarter.
Wells Fargo and Gallup polled 606 small business owners by phone, between November 9 and November 13.