New Flash of Optimism for Small-Business Owners – Wall Street Journal

The overall economic outlook is unexceptional, but Main Street is more confident about the future than it has been in years.

Small-business optimism surged in July and August to some of the highest levels since the recession started, according to a handful of recent surveys.

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In addition, The Wall Street Journal/Vistage Small Business CEO Survey’s “confidence index” reached a high of 104.2 in August, up from 102.2 in July and 93.7 in August of 2012. Of the 678 business owners surveyed, 73% expect revenues to increase in the next year and 54% expect profitability to improve—the highest levels since the survey began in June 2012.

A quarterly small-business optimism index from Wells Fargo and Gallup also reached its highest level since the third quarter of 2008, and a similar index from the National Federation of Independent Business released in August had its fourth-highest reading since December 2007.

Some small-business owners, like Hawthorne Auto Clinic Inc.’s Jim Houser, say they’re seeing a notable increase in demand from consumers.

“We’re bigger than we’ve ever been and I’m planning to be pretty bullish on things,” said Mr. Houser. His Portland, Ore., shop has consistently taken in about 15 cars a day since the recession, he said. The average amount his customers spent on repairs in a single order had dropped 20% from 2007 to 2010 when drivers wanted the bare minimum in maintenance. In recent months, however, the dollar per repair order has climbed to prerecession levels.

“I think people are no longer afraid of losing their jobs…they’re more willing to take care of their cars and buy things like tires and shock absorbers,” he said.

Sunit Sanghrajka, president of Winter Park, Fla.-based Luxury Trips LLC, said that his customer base grew by a disappointing 10% to 15% a year from 2008 to 2010. “For a smaller and younger company, that wasn’t what we were counting on,” he added. In 2011 his customer base grew 35% and last year it jumped 73%.

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Peter Chee

‘We’re bigger than we’ve ever been,’ says Jim Houser, co-owner of Hawthorne Auto Clinic, standing in front, surrounded by employees

Luxury Trips, which provides customized travel arrangements priced around $ 15,000 per person for trips to Africa, Asia and Latin America, plans to double its sales this year. “I’ve been telling my group good times are ahead,” said Mr. Sanghrajka, pointing to the relatively improved stock markets. The S&P 500 index declined 3% in the past month, but remains about 16% higher than a year ago.

Some economists take issue with the optimism data, arguing that other measurements like small-business expansion and demand for capital are lower than normal. “If small businesses were indeed optimistic we would see more plans for growth,” said Craig Everett, a finance professor at Pepperdine University.

What’s more, by most accounts the overall economic outlook is improving but still far from robust, with unemployment hovering above 7% and gross-domestic-product growth lagging behind the long-run average of 3.5%.

While small-business confidence is at its highest in years, it is still well under prerecession levels. “Let’s not get too excited,” said NFIB chief economist Bill Dunkelberg, who added that its own confidence index “is still well below the average reading” over the past 35 years.

A spokeswoman for the National Small Business Association, which also conducted a survey in July that showed a rapid jump in confidence, warned that the findings could be ephemeral. “There haven’t been these major economic battles in Congress playing out in the media lately…the sequester, debt ceiling and recession have impacted the surveys in past months,” said NSBA’s Molly Brogan. Congress’s activity in September may bring back the feeling that “the sky is falling,” she said.

Small-business hiring has lagged behind in the recovery, but there are some signs it has picked up of late. In the WSJ/Vistage survey, fielded online from Aug. 12 to Aug. 21, about half of small-business owners said they expect to increase hiring in the next 12 months. That level has been stable since February but is greater than the 40% who said in November 2012 that they planned to hire.

“Business is not what it was 10 years ago, sure, but we’re growing and hiring,” said Ann Herrmann-Nehdi, the chief executive of a development consulting company in Lake Lure, N.C. Her business, Herrmann International Inc., is investing in a new software program and has seen several banks willing to compete for the loan, she said, something she hasn’t seen in years.

“Banks have been pretty arrogant to small businesses…and the inability to grow is the inability to get funding,” said Ms. Herrmann-Nehdi, adding that she foresees hiring at least five people this year to her 30-person company.


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