SURVEY: Small business owners across the country are pessimistic about the economy and prospects for the future

By Kent Bernhard Jr.

BIZJOURNALS.COM

Aug. 19 Small business owners attitudes about the economy are at their lowest ebb in 15 months. The quarterly American City Business Journals Small Business Insight Survey conducted in July shows business owners growing more leery of current economic conditions, the economic outlook for the next six months, and their own expansion plans. About 47 percent say they think the economy is weak, up from 31 percent in April, the last time the survey was conducted. Only 24 percent say the economy is strong, down from 30 percent in April.

"They are downright pessimistic about whats going on (in the economy) today," says Bill Madway, vice president of research for the Network of City Business Journals, the national sales subsidiary of ACBJ. "Clearly their views about the economy went from bad to worse."

Thats not surprising, say small business experts. "I think its a scary time," says outplacement guru John Challenger of Challenger, Gray & Christmas.

The nationwide telephone poll of 502 owners of businesses with fewer than 100 employees was conducted by International Communications Research, of Media, Pa., from a business database maintained by InfoUSA. The surveys margin of error is 4.4 percent. American City Business Journals operates 41 business journals throughout the country.

While it remains in positive territory, the index of small business attitudes dropped in July to its lowest level since ACBJ researchers began conducting the poll in April 2001. The index - which combines scores for the current economy and their firm, six month economic outlook, and company expansion plans fell from 128 in April to 113 in July.

The previous low was in October 2001, a month after the World Trade Center and Pentagon attacks.

Every region saw declines, with index scores in the Midwest and Northeast falling most sharply and just barely staying in positive territory. In the Midwest, the index dropped to 106 from 132. Northeastern business owners outlook fell to 106 from 128.

Business owners skepticism about the economy mirrors the most recent consumer information. The Conference Boards Consumer Confidence Index, which declined in June, tumbled another nine points in July to its lowest level since February.

"Small businesses act more like consumers," Madway says. Small business owners dont have the same considerations as big business. They react to what theyre seeing first-hand, rather than how Wall Street might view their actions.

When asked about their business outlook, the owners were less optimistic than in the past. The percentage of business owners who think their firms finances will be strong in six months dropped to 66 percent in July from 75 percent in April.

The percentage of business owners planning to make a capital expenditure over the next six months fell to 38 percent in July from 45 percent in April. The percentage planning to hire for the next six months fell to 19 percent from 23 percent.

April marked the first time less than half of business owners viewed their business as currently strong. In July the percentage judging their business as strong was 42 percent. In July, 66 percent of owners had a positive outlook for their business in the next six months, the first time the percentage has fallen below 70 percent.

If those numbers continue to slip, says Madway: "Thats when Id really be worried." But the survey showed only 5 percent of small businesses plan workforce cutbacks in the next six months and only 17 percent are in any kind of belt-tightening mode.

Small business plans and attitudes are important, he adds, because, "These people control at least a third of the jobs in the country. They have over a trillion dollars of spending money. They also create a lot of the new jobs. They tend to be economic development engines for communities."

The drop in plans for capital spending was discouraging, Madway says, because Aprils poll had seemed to indicate that business might begin to pick up some of the spending that consumers have continued to do throughout the recession. More small business spending would add fuel to the recovery.

The poll was conducted over three weeks in July, and during that time, most of the economic news was bad, Madway says.

"The perception of whats going on right now got even worse," says Madway. "The evidence is still in that things are not picking up."

THE ECONOMY BY THE NUMBERS

The economy grew 1.1 percent in the second quarter, down from 5 percent in the first quarter. Unemployment held steady at 5.9 percent last month, with only 6,000 jobs added.

Manufacturing grew slightly. Markets stumbled; from the beginning of the year through Aug. 5 the Dow Jones industrial average had fallen from 10,259 to 7,991.

"There is more concern than I have seen in years," says Paul Karofsky, director of Northeastern Universitys Center for Family Businesses. "My sense is that a significant amount of it is based on the fact that a majority of CEOs are baby boomers. These folks ... thought their retirement plan was in pretty good shape and its just tanked. Thats very discouraging and very depressing."

Karofsky says theres an immense amount of uncertainty about what will happen next for the economy, and there has been since the U.S. slipped into recession last year. The uncertainty increases anxiety and makes it difficult for small businesses to plan.

"Today if you write a (business) plan, the most you can look at is two years and you better cast it in Jello," he says.

Challenger, chairman of Challenger, Gray & Christmas, says now is a particularly difficult time for small businesses.

"Small business owners are in a very precarious position," he says. "Theres not a lot of positive news."

Challenger adds that the seesaw nature of recent economic news has added to business owners unease.

"After the recession of 2001 things seemed to be on the mend, but if this recovery is moving ahead its moving ahead very haltingly," he says. "Its the ever receding recovery. It seems to have been six months away for about a year now."

He points out that interest rates are at 40-year lows, taxes have been cut, and government spending is up. All that should add up to a recovery gathering steam, Challenger says.

Instead, he says, "The economy right now is in the doldrums post bubble and were having a hard time finding the medicine. Its like an antibiotic thats lost its potency. I just think that we dont know how to do it."

Still, small businesses are resilient and nimble, and theyre generally able to ride out economic uncertainty better than large, Karofsky says. That helps business owners avoid cutbacks, even if theyre uneasy about the economy.

"They tend to have a long-term focus so there isnt the panic about making this quarters numbers," says Karofsky, adding that the average tenure for a small or family business CEO is 20 years, versus four years for the average CEO at a public company.

But Madway is concerned that without more leadership from government and big business, small business attitudes could sink further.

"Theres been a lot of negative news, a lot of up and down news," he says. "Theres no counterbalance to that."

Kent Bernhard Jr. is associate editor of bizjournals.com and can be reached at kbernhardjr@bizjournals.com.