Capital One Bank Quarterly Small Business Barometer Survey Reveals Small Businesses Are Looking Up
Small business owners are planning for the long term, with more plans to hire and more revenue toward business development and investments, according to first quarter 2012 survey data
Small business perceptions toward local economic conditions have improved significantly. Four out of five small businesses surveyed said their companies’ financial performance met expectations for the quarter. For the first time since the second quarter of 2011, the number of small businesses reporting better financial performance compared to a year ago is higher than those reporting that their financial performance is at the same level. The national business outlook indicates small businesses are upbeat about their current financial situation and improvement over 2011, but concerns over cash flow and the ability to acquire new customers are tempering their confidence about prospects for the remainder of 2012. Additionally, 15 percent of small businesses across the country currently have job openings that they are unable to fill.
“The latest survey results show some positive signs that more small
businesses are beginning to focus on hiring, with the increase in the
number of small businesses making plans to hire compared to the previous
quarter at the highest level in over two years,” said
Financial Performance and Spending
The first quarter survey results suggest small business owners are slowly recovering from a steady decline in economic conditions since the second quarter of 2011. Unlike last quarter, when economic conditions weakened relative to other quarters, first quarter survey results revealed economic conditions are improving. The number of small businesses reporting improving conditions for their firm is up 11 points to 39 percent, with the majority of this improvement stemming from fewer small business owners saying conditions are holding steady. Small businesses reporting economic conditions as getting worse held steady at 18 percent. In the last quarter of 2011, the majority of national small businesses (52 percent) believed economic conditions would stay the same. This quarter, the number of small firms reporting economic conditions are staying the same has dropped nine points to 43 percent. Findings suggest small business owners are optimistic about the potential for strong growth this year. For the first time since the second quarter of 2011, the number of small businesses reporting improved financial performance is higher than those reporting financial performance to be about the same compared to one year ago.
While more small business owners are reporting improved financial positions relative to last quarter, the number of small firms reporting that financial performance has worsened has remained steady over the last two years. The majority of small businesses are in a good place to continue investment at the same pace or even further expand their business. When asked about spending on business development and investments, the number of small businesses planning to increase spending has increased from 20 to 25 percent, and the percentage of owners planning to cut spending on business development has dropped three points from 15 percent to 12 percent. The last period of perceived economic prosperity, the second quarter of 2011, showed a much more aggressive spending climate, when the gap between firms planning to increase spending and decrease spending was a wide 20 point margin.
Economic Outlook and Business Pressures
Small business perceptions of the economic outlook for business prospects show owners are mildly optimistic. The national business outlook is a measure of business prospects over the next six months on a scale of significantly worse (1) to significantly better (10). While most small businesses are reporting better financial performance and improving economic conditions, they are not ready to project the same optimism on business prospects. Across sectors, those with a heavy focus on industrial production had higher than average scores (6.4 points) for the business outlook:
- Mining (7.2)
- Utilities (6.9)
- Construction (6.9)
- Government (6.8)
- Manufacturing (6.7)
Similarly, small business owners were asked to rate six business indicators on how much each may impact their business over the next six months. With the highest average score, cash flow (5.6) is perceived to have the greatest impact on business prospects among small businesses. Fuel prices (5.3), competitive activity (5.2), the timing of customer payments (5.2), and price margins (5.2) all sit in a mid-tier of indicators likely to impact small businesses. Interest rates (4.6) are perceived as less likely to impact businesses over the next six months. Almost half (45 percent) of small businesses continue to claim the ability to acquire new customers is their single biggest challenge in the next six months. This has been the top challenge among small businesses across the country for the last two years according to the Barometer’s past results.
In the first quarter of 2012, small businesses indicated they are less constrained by key business challenges because financial performance and economic conditions have been more favorable. One third of small businesses are intently focused on maintaining existing customers, while one-quarter (24 percent) of owners are looking to identify new revenue streams. Still, nearly two-thirds of small firms do not plan to change their prices, further demonstrating that owners are acting prudently in a favorable economic environment.
Throughout the country, 15 percent of small businesses currently have job openings that they are unable to fill, and more companies in the government (32 percent), utilities (55 percent), and mining (36 percent) sectors are unable to fill their open positions. There are fewer openings in firms in the construction (12 percent), wholesale (12 percent), and finance (10 percent) sectors as these industries have higher turnover compared to others. In line with the economic and spending trends showing an economic climate in favor of long-term investment, small businesses are beginning to focus on hiring. More small businesses are making plans to hire new employees relative to last quarter and are at the highest level reported in more than two years, according to the quarterly survey results. One in three (34 percent) U.S. small businesses plan to hire additional employees over the next six months, up significantly from 27 percent last quarter (Q4 2011) and 30 percent from last year (Q1 2011).
Availability of Financing
In the first quarter survey, nearly 25 percent of U.S. small businesses reported they obtained financing in the last twelve months. These results are consistent with results over the last two years, with a slight increase from 19 percent last quarter (Q4 2011) to 23 percent in the first quarter of 2012. In fact, more small firms reported having obtained financing in the last twelve months than in the last two years. Of these firms, small businesses in the services and retail sectors were the highest percentage of those seeking the extra support. Additionally, one in three small businesses claimed financing is harder to obtain than it was six months ago, while only seven percent reported that obtaining financing is easier than it was six months ago.
The findings reported in this release are from a telephone survey
conducted by the opinion research firm,
About Capital One
Capital One Financial Corporation
Steve Schooff, 212-216-8984