Small Business Owners Are Pessimistic About the Economy, but They Don’t Know What They’re Talking About

How to start and grow companies.
Feb. 8 2013 2:21 PM

Small Business Owners Are Really Gloomy About the Economy

But don’t worry, they don’t know what they’re talking about.

Denis Trana, a meat cutter for 14 years at Magruder's, is unsure of his future.
Denis Trana, a meat cutter for 14 years at Magruder's, is unsure of his future. The 35-year-old has three children and a mortgage and is afraid he will be told not to come into work anymore because in one day, the store sold nearly all the meat and there is nothing to do.

Photo by Katherine Frey/The Washington Post/Getty Images

The country’s business reporters got a dollop of bad news from the National Small Business Association, which released its year-end survey of economic conditions on Wednesday. The outlook, as their press release stated, is “not so good.” NSBA Chair David Ickert observed that “there are very few incentives to start or grow a small company” under prevailing conditions. Indeed, the survey shows that pessimism is rampant. Fifty-one percent of respondents say they anticipate a flat economy next year. Thirty-five percent foresee a recession, while just 14 percent anticipate that the economy will grow next year. By a 47-23 margin, surveyed small-business owners think the national economy is worse than it was one year ago. Particularly troubling to small business owners is “economic uncertainty,” which 69 percent of business owners cite as a significant challenge to the future growth and survival of their business.

So are we doomed? Not really. Delving into the history of NSBA reports, small-business owners appear to be a remarkably grumpy and pessimistic lot. The number of respondents foreseeing a recession next year is the highest since July 2009, which might make us curious as to how the economy fared in the August 2009-July 2010 period. It turns out that July ’09 was basically the low point of the recession. Over the next four quarters U.S. output expanded by $357 billion. In other words, small-business owners predicted a recession just as the recovery was starting.

The 47-to-23 ratio of respondents saying the economy is worse off today than it was a year ago is alarming. But six months ago the ratio was an equally alarming 48-to-21. In December 2011, it was 44-to-24 and six months before that it was 52-to-24. So has the economy been on a steady downward slide for the past two and a half years? Nope. Growth has been disappointingly slow in some ways, but the economy is clearly on an upward trajectory.

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So why are small-business owners so gloomy? I don’t know. But one plausible theory is politics. Owners and operators of businesses are one of the most reliably Republican occupational categories in the United States, so it’s perhaps natural for them to have a pessimistic bias. There is a president they don’t like in the White House, and they’ve consistently believed Obama’s policies are driving us into an economic ditch. Like most Americans, they don’t change their partisan commitments in the face of contrary evidence (I spent the entire five final years of the George W. Bush administration convinced war with Iran was imminent).

Perhaps the most interesting indicator in the survey is that small-business owners take a considerably rosier view of their own business prospects than those of the economy as a whole. A healthy 47 percent of respondents anticipate their own gross sales rising, while just 23 percent say they’ll decline. If growing businesses outnumber shrinking ones 2-to-1, then it’s hard to see how the economy is going to shrink.

This kind of broad pessimism mixed with local optimism occurs in non-business contexts, too. A fascinating Gallup survey on education last year, for example, found that just 19 percent of parents of public-school children think America’s public schools deserve an A or B grade. But 48 percent say the public schools in their own community rate that highly, and a staggering 77 percent say their own oldest child attends an A or B school.

Realistically, business owners have much better information about the conditions they’re facing personally than about broad national conditions. And the self-reports are indicative of economic trends more or less in line with consensus forecasts: growth—not stagnation or recession—but hardly a boom. Policymakers should still pay attention to what business operators say is worrying them. The much-hyped “uncertainty” is by far the leading cause of concern, but it’s not clear what can be done about that. In second place, however, is worries about a “decline in customer spending” named by 39 percent of respondents—vastly outpacing concerns about lack of capital (17 percent) or lack of qualified workers (12 percent). That suggests the most helpful thing Congress could do for small businesses would be something simple like reviving the payroll tax holiday or just mailing some money to every American.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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