Why are small business owners feeling so good?

(Creative commons licensed from Flickr user Navy Blue Stripes.)

Small businesses are feeling better than they’ve felt in more than three years, according to a new Wells Fargo/Gallup Small Business Index released Tuesday.  The newest so-called “Index,” shows an increase from the final quarter of 2011 in small business owners’ perceptions about revenues, financing, hiring, credit access and cash flow, among other measures.

So what brought about the good vibes?

The economic recovery is finally kicking in, according to Scott Anderson, senior economist at Wells Fargo. Consumer spending, construction and job growth all ticked up in the final quarter of 2011, leaving businesses feeling more confident about their current situations and more positive about their future prospects.

“A lot of small businesses are related to the construction industry — they’re either home builders, or they provide services to the construction industry, or they're contractors,” Anderson said. “And the housing market index has been improving.”

The survey also found that more small business owners expect to add new employees (22 percent) than expect to let them go (8 percent) over the next year, an improvement over last quarter, when it was 15 and 13 percent, respectively. Weak sales still seem to be the main issue for those who aren’t hiring, with 76 percent saying they “don’t need” additional employees at the moment and 71 percent reporting they’re worried that revenues or sales won’t justify adding more employees.

Surprisingly, even with the unemployment rate at 8.3 percent, more than half of those surveyed said it was “somewhat” or “very” difficult to find qualified candidates for open positions. Anderson said that’s because, unlike in previous recoveries, job seekers have been less able to sell their homes and move to where the jobs are in recent years.

“People are stuck in their homes, so people with skills can't move to where the jobs are being created,” he said, pointing to worker shortages in low-unemployment states like North Dakota.

Interestingly, the mood of small business owners has been more of a bell curve than a hockey stick. The index was at 12 in January 2011, then dipped to zero (neither positive nor negative) last spring, then to -3 in October, before springing back to 15 last month. (In 2007, prior to the recession, it was in the 100s.)

Anderson attributes that to a slowdown in the middle of 2011, but more small businesses are reporting revenue and capital spending boosts this time, so he thinks the more recent optimism trend will likely continue.

For the survey, Wells Fargo/Gallup surveyed 600 small business owners in all 50 states from January 9-13, 2012. The margin of error is +/- 4 percentage points.




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