Small business outlook on the economy…

After a big dip in confidence last November, small business owners are increasingly optimistic about the US economic outlook, and many plan to accelerate hiring and spending during the next twelve months. Over one-third of some 800+ small business CEOs polled in a Wall Street Journal/Vistage survey earlier this month said they are planning for a better economy, up from just 20% in November. Perhaps more telling is the number of CEOs preparing for a downturn: just 16%, compared to 43% three months ago. This optimism helped send the survey’s CEO Confidence Index to its highest level since inception last June. While this isn’t a long timeline, it does suggest the congressional deal to avert the fiscal cliff, coupled with a rising stock market, is stoking optimism despite looming concerns over the debt ceiling and budget cuts scheduled for March.

The hiring picture is starting to improve, albeit slowly. Just over 50% of the CEOs polled plan to add employees over the next twelve months, up from 40% in November. Only 7% are planning layoffs, down from 15% in November. We view this as a positive sign for the labor market, considering that small businesses employ about half of US workers and accounted for nearly two-thirds of the 15 million jobs created between 1993 and 2009, according to the Small Business Administration (SBA).

After a pullback late last year, small business owners are planning to increase spending on fixed assets, or items like machinery, land, buildings, vehicles, and technology. According to the survey, 39% of CEOs plan to invest in these items over the next twelve months, compared to only 30% in November. We suspect many small businesses will borrow to fund this expansion, thanks to low interest rates and easier access to credit as US banks ease lending standards and loosen terms.