Small businesses are critical to the growth of our nation’s economy, and the most recent quarterly MetLife & U.S. Chamber of Commerce Small Business Index (Index) shows that confidence about local economies is driving a rise in small business owners’ outlook.
An optimistic outlook on the local economy and continued positive perceptions of small business health has pushed the Q4 Index, up for the second consecutive quarter to 63.2, and an increase of 2.6 points from the initial Index release in Q2. This means 63.2% of small business owners have a positive outlook about their company and the local small business environment.
Almost two-thirds (61%) of small business owners describe the financial health of their company as “good” this quarter, about the same as last quarter. Revenue growth is expected — with 57% of small businesses expecting revenue to increase in the year ahead.
The Small Business Index surveys 1,000 small business owners from around the country and provides insight into the pulse of small businesses and the challenges they face. The local economic outlook seems to remain the bright spot for small business owners, but challenges remain, including small business owners’ views on the national economy.
In fact, the increasingly rosy local economic outlook stands in contrast to worsening national sentiment. The gap between the outlook for the local and national economies is highlighting a divergence in perception with just 38% of small businesses bullish on the national economy versus 48% who are bullish on economic growth in their own backyard. The 10-percentage point gap in relative sentiment doubled from last quarter when 41% of small businesses were positive on the national economy and 46% were optimistic about their local economy.
This was the first quarter that the Index reported regional Index scores, further showing the variation by region. The following map shows a breakdown of each region’s Q4 Small Business Index score.
Small businesses in the South are the most confident of any region, bolstered by the strongest revenue, investment, and national economic outlook of any region. Almost seven out of ten small businesses located in the South rate their business’ health as “somewhat good” to “very good,” the highest surveyed. About 63% of small businesses in the region expect revenues to grow next year, and 27% expect to increase investment, the highest of the four regions. Further, 40% of respondents in the South rated the health of the United States economy as “somewhat” or “very” good, the highest positives in the country.
The Northeast reported the least confidence of the four regions, weighed down by a more pessimistic outlook on their local economy and tighter financial conditions. Businesses in the Northeast responded more negatively regarding the health of their local economy, with 30% labeling their own backyard as “very poor” or “somewhat poor,” the highest negatives of any region surveyed. Their businesses also saw the tightest cash flow outlook, with 23% of businesses surveyed reporting they were “not at all comfortable” or “not very comfortable” with their company’s cash flow situation.
Forty-four percent of small businesses in the West rate the overall health of their business as average or worse, the lowest of any region. Small businesses in the West rate their local economy the highest of any region, with 55% of ranking it as “somewhat good” or better.
Small Business owners in the Midwest are feeling the least heat from competition with only 11% of respondents seeing more, the smallest increase of any region. Eighty-four percent of small businesses in the Midwest are “somewhat” or “very” comfortable with their cash flow, tied with the south for the strongest of any region.
No matter the region, small businesses and their economic impact matter across the country. The 28 million small businesses in the United States account for two-thirds of new jobs and generate more than half of the nation’s economic output. It is increasingly important that small businesses are better understood, enabling us to maximize our potential to fuel the economy. The MetLife & U.S. Chamber of Commerce Small Business Index will continue to capture the views of business owners and report on small business operations, environment, and future small business expectations. Only by understanding the challenges facing the business community do we have the tools with which to fight for their interests, and this Index helps us better understand a vital segment of that community.
About the authors
Bridgett Hebert is the former director for strategic communications at the U.S. Chamber of Commerce.