The Business Barometer

Looking forward, small business owners are, not surprisingly, very glum about their prospects over the next year. They continue to “eat their own seed corn” by not planning to invest back into their own businesses. Perhaps the most ominous finding for a state in which more than half of all employees work at small businesses is that hiring expectations are at their lowest levels in the 15-year history of the Barometer.

Oddly, there has been an slight upward trend over the past year in the number of small business owners who give a negative rating to accessibility of qualified personnel. With the unemployment rate so high, how hard can it be to find good workers? Apparently more difficult than you might think, especially for those firms that need specialized technical talent and must compete with companies located in regions that are warmer and more business-friendly than Michigan.

Finally, to add insult to injury, negative ratings for accessibility of credit took a huge jump. Nearly half of small businesses report problems, compared to just 30% a year ago.

Looking at Recent Business Performance

Sales are at their worst levels since the Barometer started tracking these data in 1993. Prior to 2000, reported sales increases always exceeded reported declines. Since mid-2006, the opposite has been true.

Only 16 percent of those surveyed reported that their sales increased over the past quarter. In contrast, 48 percent reported that their sales levels fell over the past quarter. Both these percentages are records for the Barometer. As a result, the gap between reported increases and decreases is substantially higher than in any previous period.

Thanks to depressed sales, profits also continued to slide.

Reports of increases in profitability dipped to 14 percent, while reports of decreases rose to 54 percent; another sad milestone marking the new high in the history of the Barometer and the largest gap between reported increases and decreases. The percentage of those reporting decreased profitability was 22 percentage points above the historical average of 32 percent, while the percentage of those reporting increased profitability is seven percentage points below the historical average.

Investment levels continued to be depressed. 13 percent reported an increase in their investment levels over the past quarter; this is unchanged from the previous wave.

The percentage of those reporting a drop in investment levels rose marginally by three percentage points this wave to 17 percent. This percentage is almost double the historical average of 9 percent.

Expectations for the Next Twelve Months

The percentage of respondents who are expecting increases in business performance over the next 12 months are at historical lows. Only 43 percent of respondents expect their sales levels to increase over the next year; this is the lowest level in the history of the Barometer. Historically, an average of 60 percent of respondents expected increased sales.

The percentage of small business owners expecting to make more investments in their business is also at a historical low (14 percent). The percentage of small business owners expecting profits to increase also fell this wave.

In this wave, hiring expectations were at their lowest historical levels. Only one in five small business owners expect to increase the number of employees over the next year. This is a fall of 12 percentage points from the last wave.

In addition, only one in three small business owners expect their employee wages to go up over the next year. Historically, almost half of those surveyed (48 percent) expect staff wages to increase.

Credit Squeeze Tightens Its Grip

It appears that the crisis that has gripped the financial industry through much of this year has exacerbated the trend in credit accessibility issues with small business owners. In this wave, the negative change in availability of credit for the purpose of small business expansion accelerated sharply.
 
The percentage of respondents rating the accessibility of credit positively continued to decline, reaching a new historical low (26 percent). This is a dramatic fall of 14 percentage points from the last wave and is almost a third of the positive rating in late 2000. Negative ratings of the accessibility of credit had been steadily rising since the end of 2006. At 48 percent this wave, a historical high, negative ratings jumped dramatically by 18 percentage points over the previous wave. This percentage is more than three times the historical average of 15 percent.

With the current recession, it is not surprising to see that small business owners’ perceptions regarding the Michigan marketplace remain unfavorable. Perceptions do not appear to have changed much since the last wave.
 
The percentage of positive ratings for the Michigan marketplace fell marginally by two percentage points, reaching 38 percent. The percentage of small business owners giving the Michigan marketplace a negative rating rose marginally by one percentage point, reaching 24 percent.

The perceptions of the Michigan’s business environment by the small business owners continue to achieve historically high unfavorable levels, with negative ratings continuing to rise. For the fourth consecutive wave, these results marked a new record high (58 percent). This is more than three times the historical average of 17 percent and more than ten times the levels seen for the latter half of the 1990s.
 
Positive ratings moved very slightly from their lowest historical level from the last wave to reach 10 percent, which reflects the average over the past two years. This compares with a peak of 75 percent in 1991. The historical average for positive ratings is four times the current percentage (40 percent).

About the Small Business Barometer

This report summarizes the results of the most recent Small Business Barometer, a study that examines the small business community throughout Michigan. Through telephone interviews with Michigan small business owners, all members of the Small Business Association of Michigan (SBAM), the study tracks advance and decline in the Michigan business climate from the perspective of small business. The Small Business Foundation of Michigan (SBFM), established by SBAM, sponsors the project with the support and participation of the Center for Urban Studies at Wayne State University in partnership with the Greater Lansing Business Monthly MiBiz, Crain’s Detroit Business and Upper Peninsula Business Today.

The December 2008 Small Business Barometer reports the results of the 58th wave of the study. Small business owners were surveyed in October 2008 and asked about the recent performance of their businesses and future expectations in the areas of sales, number of employees, wages, profitability and investments. As with prior surveys, participants rated the overall business environment, the fairness of the state tax structure, the state regulatory environment, and Michigan as a market for their goods and services. The survey responses are weighted on the dimensions of business size (measured by number of employees) and industry prior to analysis and reporting. Collectively, these ratings illustrate the state of small business in Michigan over the course of fifteen years, covering from January 1993 through October 2008.

Michael W. Rogers can be contacted at michael.rogers@sbam.org and 800-362-5461.

 

 

 

 

 

 

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