August 11, 2011

No doubt, these are volatile times. And we’re not just talking about the stock market. According to the American Express OPEN Small Business Monitor Optimism Review, the outlook for small business optimism has seen its fair share of peaks and valleys.

The overall finding of the study shows that between the fall of 2002 and late 2007, optimism was high among virtually all small business owners, reaching its highest point in mid 2005. Optimism plummeted between late 2007 and early 2008, and has not recovered for small business owners regardless of region, size of firm, industry or gender.

“The tenth anniversary of our Small Business Monitor survey provides an ideal opportunity to reflect upon entrepreneurs’ outlook on the economy and recognize their resiliency to navigate their businesses through good times and bad,” said Susan Sobbott, president of American Express OPEN.  “Over the past decade, while we have noticed that gender can often play a role in the management practices of business owners, optimism among small business owners has not varied significantly by the sex of the owner.”

The data was based on a review of “net optimism scores,” derived from the answer to a survey question asked each year in which business owners chose from four statements that best described their view of their business prospects over the next six months. Two of the statements were positive; two were negative. The score was calculated by subtracting the negative results from the positive. For example, in 2002, 64 percent of business owners had a positive view of their business prospects while 29 percent had a negative view, for a net optimism score of +35. In the spring of 2011, 49 percent had a positive view, while 48 percent held a negative view, for a net optimism score of just +1.

Other demographic breakdowns analyzed in the study include:

Geography

The study shows that currently, there is no clear delineation between optimism and pessimism levels across geographic regions. Historically, business owners in the South and West, home to the states leading in population and business growth, were the most optimistic prior to the recession in late 2007.

Pre-recession (Fall 2007) net optimism scores by region include:

1. South (+43)
2. West (+42)
3. Northeast (+28)
4. North Central (+21)

Current (Spring 2011) net optimism scores by region are:

1. Northeast (+15)
2. West (+4)
3. South (+3)
4. North Central (-19)

Size of firm

Small business optimism overall peaked in the Spring 2005 Monitor survey, at which time net optimism was +74, with fully 85 percent of small business owners believing that their firms would grow over the course of the next six months, while only 11 percent projected a decline in the near term. After the recession years of 2007-2009, the largest sized businesses (between $500,000 and $999,000 in annual revenue) experienced the lowest net optimism score of –40.

Industry

The retail sector has proven to be a strong indicator of small business outlook. Whenever business optimism has taken a dip over the past decade, this sector has led the way down, and lagged in recovery.

• Between Fall 2002 and Spring 2003, when the net optimism score overall dipped 11 points, from +35 to +24, retail trade owner optimism dipped 21 points, from +23 to +2.

• Between Fall 2007 and Spring 2008, when overall optimism dipped 40 points (from +35 to -5), retail trade owner optimism plunged 50 points (from +26 to -24).

Other sectors examined in the survey include business/personal services (throughout the full decade) and, from the Spring 2008 survey onward, manufacturing has also been tallied separately.

For more findings from the American Express OPEN Small Business Monitor Optimism Review, download the report.

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