Small Businesses Report Improved Confidence in the Economy

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Small business hiringA new survey by Capital One reveals that small business owners are more confident about the state of the economy. Capital One surveys business owners about their intentions to hire, their confidence in the economy, and other indicators that show the relative level of optimism among America’s small business groups.

Most impressively, improvement was seen in the number of small business owners who planned to add jobs in the next six months. The survey found that 37 percent of small business owners intended to hire at least one new worker in the six months following the survey. This is the highest recording in two years, putting 2012 in line with small business growth in 2010.

Some 44% reported that their small businesses were in better financial health than one year ago. The balance implied that their business had not improved, or had deteriorated in the last year.

While the financial condition of small businesses is improving, some headwinds remain. According to the survey, 25% of small business owners sought financing in the previous year. Unfortunately, 44% report that such financing is more difficult to obtain today than it was one year ago. Considering the improvement in the economy and also in small business confidence, lending standards should be eased to allow for new loans to business owners. So far, banks remain wary of commercial lending, keeping the bulk of their assets in cash and other very safe investments.

The study coincides with the findings of the National Federation of Independent Business, a group which reports its own confidence statistics once per month. The NFIB report may help us better understand third-party statistics from companies like Capital One. The NFIB says that the number of small businesses reporting that it is difficult to hire new, qualified workers for a particular job has dropped from 20 percent to 15 percent in June. July’s numbers were unchanged from June.

Businesses remain confident in their pricing power. The report suggests that as many as 8% of business owners are increasing their pricing in July to make up for weak sales volume, or to increase their own profit margins. Only 3 percent of businesses expected to increase their prices in June. The rapid change may be a result of higher commodity prices, which pinch the margins for any business involved in the sale of goods and services.

Some concerns remain, however. Businesses are most concerned about 2012 earnings, with the NFIB index for Small Business Confidence hovering at 90 throughout the recent economic recovery. This has been the weakest recovery in business confidence. Some attribute the slow improvement to a myriad of new tax changes and health care reform policies which may affect businesses with more than 50 employees.

The small business optimism index put together by the NFIB currently rests at 91.2 after a steep correction in June. Throughout the last 26 years, confidence has traditionally rested at 100. The peak was 107, and the low of 82 was found during the deepest of the financial crisis downturn.

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