The Wells Fargo/Gallup Small Business Index declined six points to positive 17 in a survey conducted July 9 – July 13, 2012. This decline virtually erases gains experienced earlier this year and brings to light the lingering concerns business owners have about their future financial situation, revenue, and cash flow.
The number of business owners expecting to be in a good financial position over the next 12 months declined seven percentage points to 59 percent; those expecting increased revenues in the next 12 months declined by six percentage points to 43. Despite the decline in the Index score this quarter, business owner optimism has improved significantly from the Recession low point when the Index dipped to minus 28 (-28) in Q3 2010.
This quarter’s survey also included questions to gauge business owner attitudes about capital spending. Fifty-three percent of business owners say they have made capital investments over the past 12 months, with the majority (70 percent) purchasing new equipment or machinery. A smaller percentage of business owners – 41 percent – say they plan to make capital investments in the next 12 months. The number one reason cited for not making an investment was concern about the overall state of the economy.
“Business owners have a lot of unknowns in front of them today,” said Doug Case, Wells Fargo small business segment manager. “This is the first drop in the Index this year and it seems to correlate to the lower percentage of business owners planning to invest in their companies in the year ahead. In the survey, businesses said they’ll be more likely to invest in their businesses when they see improvements in their operating environment, and better sales and revenues.”
Future Capital Spending
Small business owners planning to make capital investments over the next 12 months say they intend to make them in new equipment/machinery (64 percent) and technology, such as computers (61 percent), new software or websites (56 percent), and mobile devices (52 percent). This reflects the growing importance of having up-to-date technology to conduct business.
Purchase rates for newer technology devices have steadily increased year-over-year among small business owners, while investments in older technologies are flat or declining:
Funding Capital Investments
Lower expectations for increased revenues in the next 12 months may be problematic for small business owners who plan to fund capital expenditures primarily with business revenue and profits rather than relying on credit or savings. Business owners who said they plan to make a capital investment over the next 12 months say they are planning to pay for it using:
Small Business Index Key Drivers
Wells Fargo, together with Gallup, surveys small business owners quarterly across the nation to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability.
Index Scores: Q3 2011 – Q3 2012
|Overall Index Score||Present Situation||Future Expectations|
Substantial changes were seen in four of the six survey components – Revenues, Financial Situation, Cash Flow and Credit:
Current Situation (past 12 months)
Future Expectations (next 12 months)
A recorded interview with Wells Fargo Senior Economist, Mark Vitner, is available on the Small Business Index section of Wells Fargo’s Business Insight Resource Center at www.wellsfargobusinessinsights.com/small-business-index. Listen and download complete survey results.
About the Small Business Index
Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small business owners on current and future perceptions of their business financial situation. The Index consists of two dimensions: 1) Owners’ ratings of the current situation of their businesses and, 2) Owners’ ratings of how they expect their businesses to perform over the next 12 months. Results are based on telephone interviews with 600 small business owners in all 50 United States conducted July 9-13, 2012. The overall Small Business Index is computed using a formula that scores and sums the answers to 12 questions — six about the present situation and six about the future. An Index score of zero indicates that small business owners, as a group, are neutral -- neither optimistic nor pessimistic -- about their companies’ situations. The overall Index can range from -400 (the most negative score possible) to +400 (the most positive score possible), but in practice spans a much more limited range. The margin of sampling error is +/- four percentage points.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.3 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With approximately 265,000 full-time equivalent team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortune’s 2012 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.
Wells Fargo loans more money to America’s small businesses than any other bank (2002-2010 Community Reinvestment Act government data) and is a leading lender to women- and diverse-owned businesses. With the nation’s largest network of retail banking stores, and an award-winning online library of videos, articles and webcasts known as the Business Insight Series (www.wellsfargobusinessinsights.com), Wells Fargo provides business owners with timely advice and information to educate and help them succeed financially. For more information, or to speak with a Wells Fargo banker, visit wellsfargo.com/biz or call the National Business Banking Center at 1-800-CALL-WELLS.
For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of people’s attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions.
Note: Complete survey results available upon request or by visiting www.wellsfargobusinessinsights.com/small-business-index.