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Optimism turns into harsh reality for small businesses

By February 16, 2019No Comments

(This post originally appeared on The Guardian)

This past week two very important indicators of small business optimism were released and both revealed something about the state of small business in the US: reality.

Earlier in the week, the Wells Fargo/Gallup Small Business Index revealed a decline in confidence among its respondents to a level of 106 (last quarter’s was 129). However, the metric marked its seventh consecutive quarter of positive territory.

That sentiment was echoed the next day with the release of the National Federation of Independent Businesses Small Business Optimism Index which declined in January – it’s fifth monthly decline. It was once as high as 108 (100 is positive) and it’s now at about 101. It’s still at historically high levels and way above the level (80) that it was during the 2009 recession. But it’s down.

Yes, both indexes declined from historically high levels. But is this indicative of a potential economic downturn? That’s not likely so. Is it the “growing uncertainty” that some claim? That’s partly true. But it’s not the real reason. The real reason is that these indexes have returned to reality from the irrationally exuberant levels of optimism recorded with the departure of the Obama administration.

For the first two years of the Trump administration, small business owners were excited to see a loosening of regulations, lowering of taxes and renewed pro-business attitude. After eight years of battling with the previous administration, the change in leadership was exciting. It fueled excessive optimism.

But now reality has set in, and the reality is this: it’s very hard to run a small business. Both surveys reported how small business owners are struggling to grow revenues, find qualified employees, control costs, manage their cash and navigate the economy. Even pro-business governments can help and also (in the case of the Trump administration’s wars with the Democrats, the Chinese and the Federal Reserve hurt) hurt a small business. But in the end the success and failure of an enterprise will rest on the intelligence, timing, luck and effort made by the business owner.

Make no mistake, business owners are still very optimistic. The levels of both the Wells Fargo/Gallup and NFIB surveys remain at historically high levels, and each survey reported continued hiring and investment as well as confidence in a good 2019 among its respondents. The NFIB reported rising inventories (an indication of investment for the future), although less business owners planned on increasing inventory in the near future. Fewer respondents reported rising sales, but sales are still strong.

What does this all mean? It means that that business owners are realizing that no matter what legislators do (or don’t do) it’s up to them to succeed. They’re realizing that all the uncertainties that they had in the past never really went away and uncertainty is a permanent part of running a business.

So the surveys don’t reveal a decline in optimism. They’re just revealing an adjustment to reality. My prediction, given the strong economy and Washington’s gridlock – is that those strong levels will remain consistent throughout the coming year.

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