After the Wells Fargo/Gallup Small Business Index dropped to the most pessimistic level in two years in November, business owners are more optimistic as 2013 begins. The latest Index improved 20 points to positive 9 in January 2013, up from negative 11 in November 2012, indicating an improvement in optimism since the November elections.

Key drivers of this improvement in the survey, conducted Jan. 7-11, 2013, include increased business owner optimism about revenues, capital spending and jobs over the past 12 months and more optimism about their overall financial situation, revenues, cash-flow and jobs over the next 12 months. A year ago, in January 2012, the Index was at positive 15.

While optimism improved from the fourth quarter, the survey paints a mixed picture with respect to jobs and hiring. More business owners (71%) expect the number of jobs at their companies to stay the same over the next 12 months, and business owners planning to add jobs during the same period remained unchanged at 17%.

Among those who hired new employees the past 12 months, 35% of owners are hiring fewer employees than they need, up from 29% in January 2012, but below the 42% of November 2010.

“At a time when news headlines report mixed economic news and uncertainty in Washington, our survey shows the volatility of business owner sentiment today,” said Doug Case, Small Business Segment manager for Wells Fargo. “Business owners are feeling a bit more positive at the beginning of the year, but they also express concern about the operating environment that could impact future business decisions, such as hiring new employees.”

Small Business Hiring

This quarter, the Index survey included additional questions on hiring and jobs. When small business owners who are not hiring were asked for the reason, the top responses were:

  • Don’t need additional employees at this time (81%)

  • Worried about the revenues and sales to justify new employees (74%)

  • Concerned about the status of the U.S. economy (66%)

  • Worried about the potential cost of health care (61%)

  • The number of small business owners saying they are not hiring for
  • fear they may no longer be in business in 12 months increased to 30% in January up from 24% from one year ago.

    The top reasons small business owners say they are hiring include:

  • Increased consumer or business demand (70%)

  • Expanding their business operations (68%)

    When looking for new employees, 63% of small business owners report using word-of-mouth and 47% employee referrals. Twenty-three% of owners say it is very difficult and another 30% say it is somewhat difficult to find qualified employees – about the same as in January 2012. Twenty-seven% of owners say the difficulty of finding qualified employees has hurt their business over the past 12 months, up from 21% a year ago.

    Forty% of owners say they would look for temporary or contract workers when hiring while 36% say they would seek part-time employees, and 22% full-time employees. When they can’t afford to hire new employees, 28% of owners say they turn to their spouse for unpaid help, 14% turn to their children, 13% to a friend, 7% to another relative, and 6% to a student.

    Small Business Index Key Drivers

    Wells Fargo, together with Gallup, surveys small business owners quarterly across the nation to gauge their perceptions of their present situations (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability.

    The January upturn in the Index was impacted by improvement in both Future Expectations of 12 points and an 8-point rise in Present Situation. Substantial changes were seen in several survey components:

    Present Situation (past 12 months)

  • Revenues – 36% say company revenues increased, up from 29% in Q4 2012

  • Jobs – 22% say their company decreased their number of employees, compared with 26% in Q4 2012

  • Capital Spending – 25% say their company increased their capital spending, up from 18% in Q4 2012

    Future Expectations (next 12 months)

  • Overall financial situation – 57% expect their company’s financial situation to be very or somewhat good, up from 50% in Q4 2012

  • Revenues – 43% expect company revenues to increase, up from 37% in
    Q4 2012

  • Cash-Flow – 49% expect their cash flow to be very or somewhat good, up from
    44% in Q4 2012

  • Jobs – 12% expect their company to decrease their number of employees, compared with 21% in Q4 2012

    The majority of small business owners surveyed also say health care costs (54%) and taxes (53%) are hurting their operating environment “a lot.” These two responses topped energy prices (47%), government regulations (46%), the federal debt ceiling (40%) and availability of credit (25%).

    For more information on the survey, click here.