More U.S. Small Businesses Plan to Increase Capital Spending

PRINCETON, NJ — The proportion of U.S. small-business owners who plan to increase their company’s capital spending over the next 12 months (28%) is the highest in four years, according to the Wells Fargo/Gallup Small Business Index. The positive gap of five points between the percentage of small businesses expecting to increase and the percentage expecting to decrease their capital spending allocations is also the highest since January 2008.

Trend: Wells Fargo/Gallup Small Business Index -- Future Expectations for Capital Spending

Not only are more U.S. small-business owners planning to increase their capital spending in the next year, more also report actually having done so in the past 12 months. Twenty-four percent of small-business owners now say they have increased their capital spending — up from 19% in October 2011 and the highest level of such spending since April 2008. Thirty-five percent of owners say they decreased their capital spending — down from 43% in October, and the lowest level since July 2008.

Trend: Wells Fargo/Gallup Small Business Index -- Current Situation for Capital Spending

Expecting Credit to Get a Little Easier

U.S. small-business owners’ views about the ease of obtaining credit have also become less negative. The proportion of U.S. small-business owners who feel it will be somewhat or very easy to get credit over the next 12 months (27%) is the highest since April 2009, and is up from 22% in October of last year. While 38% still expect it to be somewhat or very difficult to get credit, this is down significantly from 43% in October.

Trend: Wells Fargo/Gallup Small Business Index -- Future Expectations for Obtaining Credit

One in three small-business owners continue to say it was somewhat or very difficult for their company to get credit over the past 12 months — about the same as in the last two quarters of 2011. However, 25% of owners say credit was somewhat or very easy to get over the past 12 months, the highest percentage since April 2009.

Trend: Wells Fargo/Gallup Small Business Index -- Current Credit Availability

Implications

The increase in U.S. small-business owners’ capital spending expectations is consistent with their optimistic hiring intentions and with the high level of overall economic confidence as measured by Gallup. It is also good news for the U.S. economy when small-business owners spend and invest more in their physical and human capital.

While small-business owners’ overall optimism may be the driving force behind their increased capital spending intentions, their credit expectations may also play a role in those decisions. It is easier for owners to invest more in their companies when they feel credit is becoming somewhat more, rather than less, available. Although it may still be difficult for many small-business owners to get credit, their views of doing so have improved in comparison with the past few years.

Whether these increased capital spending expectations are going to be realized remains in doubt in today’s fragile economy — even today’s increased optimism among small-business owners leaves their economic perceptions far behind pre-2008 levels. Further, soaring gas prices threaten consumer confidence and consumer spending. In turn, the decline in consumer spending and the increase in operating expenses created by higher gas prices may also threaten small-business owners’ capital spending and hiring plans.

About the Wells-Fargo Small Business Index

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small-business owners on current and future perceptions of their business financial situation. Visit the Wells Fargo Business Insight Resource Center to access the full survey report and listen to Wells Fargo Senior Economist, Dr. Scott Anderson in his quarterly Small Business Index podcast.

Survey MethodsResults for the total dataset are based on telephone interviews with 600 small-business owners, conducted Jan. 9-13, 2012. For results based on the total sample of small-business owners, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.

Sampling is done on an RDD basis using Dun & Bradstreet sampling of small businesses having $20 million or less of sales or revenues. The data is weighted to be representative of U.S. small businesses within this size range nationwide.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

For more details on Gallup’s polling methodology, visit www.gallup.com.

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About maricopasbdc
Director of Maricopa Community Colleges SBDC, serving Maricopa County small businesses with free technical assistance, and seminars, training and other services.

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