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posted on 09 December 2015

November 2015 Thumbtack Small Business Sentiment Improved Marginally.

from Thumbtack

-- this post authored by Jon Lieber

Our November survey of nearly 18,000 small business owners showed that the current sentiment of these professionals is up slightly, and the sharp decline in expectations about the future that we have seen since March of this year has flattened out:

Expectations for profitability, the economy, and the financial situation are all up slightly:

Reported job openings are down slightly:

And finally credit expectations and expectations about inflation both came in flat this month:

A Tale of Four Economies

Looking at the Overall Sentiment Index by region paints a picture of four separate economies for small businesses, with the South scoring a full four points better than the Northeast in November, a trend that has persisted over time:

The South ranks first in each of our 8 sub-indexes of Small Business Sentiment, and each of our top five states is in the South - Georgia, Alabama, Arkansas, Texas, Florida.

Top 10 States, November, 2015

State Economic Sentiment Index Score
Georgia 68.07
Alabama 67.67
Arkansas 67.4
Texas 66.26
Florida 65.78
Tennessee 65.47
North Carolina 65.36
South Carolina 65.18
Rhode Island 64.40
Colorado 64.35

From an industry perspective, transportation, cleaning, landscaping, and home improvement professionals continue to report strong feelings about the economy. Landscaping professionals reported a depressed outlook on the future, possibly due to a seasonal slowdown as cold weather creeps in.

Industry Economic Sentiment Index Score
Transportation 67.6
Cleaning 67.5
Home Improvement 65.3
Landscaping and Lawncare 64.5
Wellness 64.1
Professional Services 63.4
Pet Care 63.4
Personal Services 62.9
Events 62.5
Lessons 60.9
Photography 59.9

This stratification between industries is consistent with what we found when we looked at different industries in August.

Transportation professionals, despite their overall optimism, recorded the single biggest reported decline in their feelings about their current economic situation. Lessons and photography professionals reported the lowest current sentiment in the country, continuing a pattern we've seen for several months now.

Looking more closely at some selected indicators from the transportation sector, professionals in moving and personal transportation reported a steep drop in their current financial situation from 75.2 to 69.5, and an unusually large move in their ability to pass cost increases onto consumers from 47.7 to 41.9. This could reflect uncertainty about oil prices, which have fluctuated wildly in recent months with a very uncertain outlook due to unusual pricing strategies in OPEC. At the same time, transportation professionals have reported a seasonal uptick in hiring and a drastically worse outlook for their future capital expenditures.

Selected Index for Transportation Industry Economic Sentiment Index Score, October 2015 Economic Sentiment Index Score, November 2015
Small Business Sentiment Index 68.96 67.55
Current Financial Situation 75.24 69.47
Price Expectations 59.77 62.87
Inflation Pass-Through 47.72 41.91
Expected Capital Expenditures 65.15 61.39
Past Job Openings 43.97 50.50

Paris Attacks, the Elections and the Fed

This month we also looked more closely into the text responses we collect from our professionals, to determine what is driving their expectations about the future and their current financial situation. We ask two questions of survey respondents:

  1. Please let us know how your business is being affected by the current economy.
  2. Is there any local or national news event or development in the last month that has affected your business outlook?

The second question was added a few months ago and tends to elicit more interesting answers. We will occasionally get impactful local news stories called out here, though frequently headline events such as the attacks in Paris and the Presidential elections show up in answers to this question, even though news events like this don't directly affect a small service business.

The below word cloud gives a picture of some of the issues on the minds of Thumbtack professionals - these are based on the most common words in answers to the question "Is there any local or national news event or development in the last month that has affected your business outlook?"

News events affecting business outlook

Recent headlines such as terrorism, ISIS, and Paris make an appearance, as does one Presidential candidate in particular: Donald Trump. Christmas also showed up as a popular topic in November, with many pros mentioning it as a slow period for their service-based business. One national policy item that does show up frequently is the possibility of the Fed raising interest rates in its December meeting, making credit even harder to come by. "Federal reserve," "rising," "raising," and "interest rates" were frequently correlated with each other in these responses.

Credit is a particularly important concern for small businesses in the service economy. Over 40 percent of our respondents this month indicated that they would like to take on additional credit to expand their businesses, but, of those, just more than a quarter received most or all of the amount they were seeking. And a full 61 percent of those needing credit were unable to obtain a loan, either at all or with acceptable terms.

Weighing a New Minimum Wage

The minimum wage is frequently mentioned as well, which is unique for bringing out strong feelings on either side. The sentiment of words strongly correlated with "minimum wage" in a textual analysis of these responses revealed everything from "honorable" to "unrealistic." One pro wrote: "The recent demands for a living minimum wage would put my services within reach of more consumers."

Another wrote from the opposite perspective: "The possibility of minimum wage going to $15 would result in reducing the number of independent contractors I use by about halsf, which will reduce the number of jobs I can take on. It will also result in higher hourly costs on my jobs."

As we discovered in a previous 2014 survey, many pros don't believe they will be affected by an increased minimum wage because they already pay wages higher than what was being proposed at the time as a new federal floor, but even among pros who reported they would be affected by the minimum wage there were a large number of supporters of increasing it to give consumers more buying power or, frequently, because they felt it was the right thing to do.

It's the Holiday Season

After the seasonal decline in Sentiment this summer, a pattern we have seen for the past three years, it is worth watching what happens to Sentiment into the New Year. As this is our first year collecting monthly data on this survey, we will be able to better see if these patterns are seasonal or if the decline in expectations about the future represent a real trend in small business sentiment.

With the holidays approaching, many pros see their business slow down, followed by an increase in activity in the New Year. However, current sentiment has been held flat for two months now - we'll see if the December data reflects this slow down or not.

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