Recent small business owner surveys show some consistency but also differences in outlook.
It’s been some time since this column last reviewed available data on the state of small businesses in the United States. Now, a new year is underway, a new Congress has convened, legislative sessions around the country are in full swing, and the 2024 presidential race has begun. What should policymakers in Washington and state capitals know about how small businesses say they’re doing? Several recent surveys and data releases provide insight. (Enormous HT: Tom Sullivan.)
Top Lines: Hiring Challenges, Diverging Outlooks
Across five different surveys released in January and February, small businesses are united in saying that, while they’re trying to hire, they face continued difficulties in filling positions. Small business owners are less united in these surveys, however, when it comes to confidence and outlook. The five surveys canvassed here are:
A short appendix at the bottom of this column provides a rough comparison of the surveys in terms of sample size and types of businesses surveyed.
Small Business Confidence Could Be Stable—Or Rising—Or Falling
The overall indices of confidences in these surveys shouldn’t be over-analyzed. More interesting are the components of each and the decisions that small businesses say they’re taking and why. But, confidence readings can provide a quick temperature check of how small businesses think they’re doing. As the headline suggests, the surveys seem to point in different directions.
The WSJ/Vistage Small Business CEO Confidence Index was “stable” in January, remaining close to the highest level of the previous six months. Meanwhile, there was a small increase (two points) in the CNBC|SurveyMonkey Small Business Confidence Index.
In sharp contrast, the NFIB Small Business Optimism Index has trended steadily downward since the end of 2019. Much of that deterioration appears to be from what NFIB labels the “soft” components of the index, such as expected credit conditions and outlook for expansion. The “hard” components—such as job openings and earnings—have also trended downward but not by nearly as much. As the NFIB commentary in the report notes, “if it weren’t for the Job Openings and Hiring Plans components, the Index would be much lower. … Everything else is pretty much in the tank.”
It would be interesting to look at the trailing relationship between the hard and soft components—does a decline among soft components (mostly stated intentions) predict a decline in hard components (mostly revealed actions)? An eyeball glance at the chart indicates this could be the case, but more rigorous analysis would be needed. For what it’s worth, Michael Cembalest at J.P. Morgan cites NFIB’s “demand vs wage cost composite” as a leading indicator. Currently, says Cembalest, it “points to more downside ahead” in terms of S&P 500 net margin.
Hiring: We (Think We) Want Workers
In four of the five surveys, a majority of small business respondents says they’re hiring. (The exception is CNBC|SurveyMonkey, which doesn’t quite ask the same question; just 23% in that survey expect their full-time workforce number to rise in the next 12 months.) It’s possible that some weakness in hiring intentions can be detected—but hiring difficulties continue to plague small businesses.
The Alignable survey showed the strongest increase in hiring, a monthly gain of eight percentage points. There were strong increases, compared to the end of 2022, in hiring plans for both full-time and part-time workers. Similarly, the share in the NFIB survey saying they’re hiring rose in January compared to December. The balance of respondents in the NFIB survey indicates that more small businesses are planning to hire in the near term. By contrast, net hiring plans in the WSJ/Vistage survey fell month-over-month.
Among those small businesses in the 10KSBV survey hiring, 82% said it’s difficult to find and recruit qualified candidates. For 10KSBV survey respondents, difficulty finding and retaining qualified employees beat out inflation by 12 points as their most significant problem.
An even higher share of those actively hiring in the NFIB survey, 91%, said they had few or no qualified applicants for open jobs. The share of NFIB respondents saying that job openings are hard to fill remains “historically very high,” according to the commentary. A consistent share of small businesses in the CNBC|SurveyMonkey survey have cited hiring difficulties. In every quarter over the past two years of that survey, “about half of small business owners say it keeps getting harder and harder to hire workers.”
According to the WSJ/Vistage survey, however, “small businesses are finding it increasingly easier to find talent.” A higher share of respondents said they found it easier now to fill job openings than a year ago—and since November, there’s been a 15 percentage point drop in the share saying that hiring challenges affected their ability to operate at full capacity. In other words, they’re adapting. There is perhaps some similar easing of hiring difficulty among respondents in the Alignable survey. There, although 51% said it’s difficult “to source and hire well-qualified employees,” that was down from 65% at the end of 2022.
Rising Hopes Or Stubborn Optimism?
A consistent theme in almost all small business surveys across time is that in spite of any lack of confidence that small business owners may express in overall economic direction, they remain optimistic about their own prospects. How could it be otherwise?
In the WSJ/Vistage survey, 60% “expect increased revenues” in the next 12 months. A smaller share, 47%, expected improved profitability for their business, but that is the “highest level in nine months.” A higher share (60%) in the 10KSBV survey expect improved profitability this year and nearly 70% are optimistic about the financial trajectory of their business this year.
Less optimism is seen in the NFIB survey, however; the net percent of respondents expecting higher versus lower sales in the next three months dropped from December to January and is at its lowest level since last August. The question in the NFIB survey does reference a shorter timeframe than in other surveys (three months compared to 12 months).
Perhaps of greatest concern, the share of small businesses in the NFIB survey planning capital expenditures during the next three to six months has steadily slid downward and is at the lowest level (21%) since March 2021.
What Do These Surveys Tell Us?
The hiring issue continues to present a dilemma to the Federal Reserve, economists and others. Unemployment remains historically low and monthly job creation has been strong. Part of the issue is that labor force participation has not fully recovered and has been falling for years. That may be behind the survey findings relating to hiring difficulties among small businesses. Yet researchers have also found that many workers have reduced their hours worked. It doesn’t appear as if the small business surveys have asked about this, but perhaps they should: Do employees, at any level, in your business work fewer hours today compared to a year ago, voluntarily or involuntarily?
Divergence among the small business surveys may also be rooted in differences in samples or between economic sectors. There is some indication of this in the publicly-reported Alignable results, with significant differences between sectors in hirings and layoffs. Seasonal fluctuations may also be at play—it would be good to know how those affect survey findings. Overall, some deeper analysis, as noted above, is needed to fully grasp how worried, or how heartened, we should be by these surveys.
Appendix: Respondent Populations
Survey comparisons should always bear in mind differences in methodology, sample size, sample composition, and more. Not every relevant piece of information is available from these surveys, but below is a quick rundown.
WSJ/Vistage
- n=534 “CEOs and leaders of small businesses”
- 41% of respondents have between 20 and 49 employees
- 39% have between $10 and $20 million in annual revenues
10KSBV
- N=1,838 participants in Goldman Sachs 10,000 Small Businesses program
- Most have fewer than 20 employees
NFIB
- N=1,466 “owner/members” of NFIB
- Majority has fewer than 10 employees
Alignable
- N=3,846 “randomly selected small business owners”
CNBC|SurveyMonkey
- N=2,371 “self-identified small business owners”
- 78% have fewer than 10 employees
