Confidence grows for small business

Confidence Grows For Small Business

Small-business owners are more upbeat about the economy now than they were six months ago, according to the latest Nation's Business-Ernst & Whinney survey of chief executives. Their confidence about the nation's economic performance in the year ahead is higher now than it has been since the first of the semiannual surveys of executive's attitudes two years ago.

Seventy percent of the executives responding to the most recent survey said they are either very optimistic or somewhat optimistic about the economy in 1989. The figure was significantly higher than the 64 percent of respondents who expressed such confidence six months ago. The highest confidence level posted in the surveys was reported in November, 1986, when 77 percent of executives expressed optimism about the economy.

"I think the economic recovery will continue," said David Otsuki, president of Capital Color Laboratories in Santa Clara, Calif. "Employment figures are very favorable, and the strength of the dollar against other currencies is a good sign. Inflation has remained steady, also. My company's existence is tied to the amount of discretionary income out there, so I've got to be confident about the economic picture."

The survey was commissioned for Nation's Business by Ernst & Whinney, a leading international public-accounting, tax-advisory and management-consulting firm. The survey was carried out by Angell & Company, Inc., an independent marketing-research firm.

Telephone interviews were conducted with 500 chief executives chosen at random from a statistically representative sample of U.S. companies with annual sales of up to $40 million.

Two thirds of the surveyed executives have been in businesss more than 15 years. Well over half said they earn more than $100,000 a year, and nearly 1 in 5 earns more than $200,000. Most are 35 to 54 years old.

A majority of those who responded said they see good times ahead for their companies. Ninety percent said their companies are in good to excellent financial condition, and 65 percent expect net operating results to be improved one year from now. Although that is a slight drop from the expectation level of six months ago, other indicators of small-business confidence about the coming year are essentially unchanged. Fifty-one percent expect to hire more employees, 38 percent expect to increase capital spending, and 25 percent expect to increase their borrowing.

Etta Williams foresees improved results for her Mutual Business Forms company in Powell, Tenn. "We're making several internal changes that will help us," she said. "Through production changes and expanding our training to all personnel, we ar expecting to create efficiencies within the company."

"I can't really expect a large increase in sales," said R. David Halbower, president of the Texas Drug Company, a Fort Worth wholesaler. "But small, sustained sales increases coupled with maintaining margin will mean better operating results for me."

Recession And Inflation. Although confidence about the economy is at a fairly high level, almost two thirds of the executives expressed concern about recession and inflation. The proportion extremely concerned about inflation has fallen to 8 percent from 11 percent in the six months since the previous survey, and the percentage extremely concerned about recession has remained at 12 percent.

In each Nation's Business-Ernst & Whinney survey, small-business CEOs have predicted a rise in the inflation rate during the year. The current survey continues the trend, with an average prediction of 5.2 percent, compared with a forecast of 4.7 percent six months before.

Past surveys indicate that the CEOs consistently err on the high side with their inflation predictions. The inflation rate at the time of the survey was running at a 3.4 percent annual rate. Respondents to the survey a year earlier had predicted it would be 5 percent.

Interest Rates. The small-business owners predicted that the prime rate would rise from 9 percent at the time of the survey to about 10 percent, the first time their average prediction has reached double digits since the initial survey in 1986.

In fact, the prime, the rate at which banks lend to their best business customers, rose to 10 percent shortly after the survey was completed.

"I think the government will have a hard time managing the deficit and that it will start to tighten up the money supply and push the rates up," said Halbower.

The rate they must pay to borrow money is a concern to two thirds of the CEO's, which is up from the 58 percent who expressed concern six months ago.

Other Concerns. The cost and availability of labor now worry more small-business executives than they did in any previous survey. Sixty-eight percent of the respondents are now at least somewhat concerned about labor costs, and 59 percent are concerned about availability.

David Otsuki, president of the lab in California, said: "Labor is at a premium here in Silicon Valley. I don't have the margins to match the high-tech companies in paying unskilled labor. My profits can only handle so much."

The most widespread CEO concerns, however, focus on government--as they have in previous surveys. Ninety-three percent of the respondents are concerned about government spending, 82 percent about red tape.

"I have to deal with too many agencies, and each one seems to have conflicting regulations and requirements," complained Alex Zaika, president of New York City's All-Z Corporation, which handles apartment rentals. "Worse than that, they don't know what the other is doing, nor do they care. It's just too much--and with the delays caused at each agency, I stand to lose a lot of money."

COPYRIGHT 1988 U.S. Chamber of Commerce
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