Is it possible, or even reasonable, to generalize about the “state” of all small businesses? That’s the question that usually lurks behind this column’s periodic reviews of small business surveys and data. In one sense, attempts at such generalizations are dubious: the small business population is simply too large and diverse to make sweeping statements about it based on small-sample surveys.
On the other hand, many of these studies are quite good and long-term, which provides consistency. And there are some newer entrants to the field that are quite large in their sample size and sophisticated in methodology.
Unfortunately, the answer, as these studies and data sets suggest, to the question of how small businesses are doing is: stuff is everywhere.
Good News: Current Performance, Future Expectations
Overall, at least compared to the worst years and months of the pandemic, the performance of small businesses has improved and appears somewhat stable. In the Census Bureau’s relatively new Business Trends and Outlook Survey (BTOS), most small business owners seem to say things are stable. Shares of those reporting either an increase or a decrease in recent performance or revenue have not changed much. Indeed, there has been an increase in those who say their performance is “average”. Not exactly the breathless headlines, but encouraging. And fewer small businesses in BTOS say their revenue has recently fallen, from 42% in January to 31% at the end of April.
In the latest Small Business Credit Survey (SBCS), produced by the 12 banks of the Federal Reserve System, the “Employer Firm Performance Index” returned to positive territory for the first time since 2019.
Things are more rosy when small businesses are asked about their outlook. In Bank of America’s “2023 Small Business Owner Report,” two-thirds of survey respondents expect their revenue to increase in the next 12 months. It was a slight notch down on previous survey results, but higher than in any pre-Covid year.
Likewise, 56% of small business owners in the SBCS expected an increase in their revenues during 2023. More moderation is found in the Census BTOS, where the share of small business owners expects “above average” future performance (on a six-month horizon). has risen steadily over the past five months. Most simply say they expect their future performance to be average.
When they are optimistic about their growth prospects, small business owners seek external credit. In SBCS, 53% say the reason they apply for a loan or line of credit is growth or the pursuit of new opportunities. According to the Bank of America survey, 82% of small business owners expect to seek external financing this year, with business credit cards as the primary product. (In contrast, only 29% said they intended to apply for a bank loan.) In another sign of possible optimism, over half of respondents in National Federation of Independent Business (NFIB) sample made a capital expenditure in the last six months.
Bad news: Creeping pessimism
However, there is plenty of cause for concern in the small business data. Start with the big picture: Small business owners are very bearish about the course of the overall economy. In the Bank of America survey, 72% are worried about a recession, and only a third expect the state of the national economy to improve. According to the NFIB, there is one net negative 47% read about whether general business conditions will improve or worsen in six months. In other words, deep pessimism.
Actually NFIB optimism index fell month over month and “for the fifteenth month in a row [is] below the 49-year average.” Interestingly, the “hard” components of the Optimism Index (mostly “plans”) remain elevated, while the “soft” components (eg, “expectations”) have sunk lower. To the eye, there never been so great a discrepancy between the two.
Now let’s look at the actual performance. In the outstanding Intuit QuickBooks Small Business Index, small business employment growth has declined for eight consecutive months (see diagram).
The “expectations index” in the Fed SBCS fell in the latest survey and remains well below pre-Covid levels (see chart).
Similar signs of withdrawal can be found in the NFIB study:
- Only 2% of respondents say now is a “good time to expand.”
- Hiring plans have gone down.
- The share of small businesses planning capital expenditures is just 20%, the lowest level since March 2021.
If you want it, you can find it
Yet part of the joy—and challenge—of working with small business research and data is that you can find just about any story you want to tell. While there are signs of a hiring slowdown, for example in the Bank of America survey, a higher proportion of small businesses (34%) expect to hire new employees over the next 12 months than in the previous survey. And while the share of small businesses with job openings in the NFIB survey is lower than a few months ago, it is still elevated compared to pre-Covid.
As always, there’s so much more to dig into, from funding trends to lingering concerns over inflation and interest rates. Stay tuned for more updates as new results are released in the coming weeks.
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