Small-Business Optimism Declines, Spending on Smartphones Rises

As optimism declines, small-business capital expenditure patterns are changing, with a focus on tablets and smartphones.

Small-business owners concerned about their future financial position caused the Wells Fargo/Gallup Small-Business Index to decline six points to positive 17 in a survey conducted in July, erasing gains made earlier this year. However, business-owner optimism has improved €œsignificantly€ from a low point in the third quarter of 2010, the report noted.

Future capital spending was driven by investment in equipment and machinery (64 percent) as well as technology, such as computers (61 percent), new software or Websites (56 percent) and mobile devices (52 percent). Investment in smartphones stood at 38 percent in the second quarter of this year, up 11 points from the same quarter last yer; purchase rates for cell phones that are not smartphones, fell 4 percent in this interval. Investment in tablets like Apple€™s iPad rose 12 points to 23 percent, while spending on desktops declined 3 percentage points to 29 percent.

€œBusiness owners have a lot of unknowns in front of them today,€ Doug Case, Wells Fargo small-business segment manager, said in a press statement. €œThis is the first drop in the index this year, and it seems to correlate to the lower percentage of business owners planning to invest in their companies in the year ahead. In the survey, businesses said they€™ll be more likely to invest in their businesses when they see improvements in their operating environment, and better sales and revenue.€

When asked about their overall financial situation, 59 percent of respondents said they expect their company€™s financial situation to be very or somewhat good over the next 12 months, down from 66 percent in the second quarter of 2012, while 20 percent expect their company€™s financial situation to be somewhat or very poor over the next 12 months, up from 15 percent in second quarter of 2012. Access to credit was also perceived to be more difficult, with 37 percent expecting credit to be very or somewhat difficult to obtain, up from 32 percent in the second quarter of 2012.

Access to credit, cash-flow expectations and revenue projections all experienced declines. €œLower expectations for increased revenues in the next 12 months may be problematic for small-business owners who plan to fund capital expenditures primarily with business revenue and profits rather than relying on credit or savings,€ the report noted.

Results are based on telephone interviews with 600 small-business owners across the United States, and focus on current and future perceptions of their business financial situation. The overall index can range from -400 (the most negative score possible) to +400 (the most positive score possible), although the company notes most results fall within a narrower range. An index score of zero indicates that small-business owners, as a group, are neither optimistic nor pessimistic about their companies€™ situations.