Optimism is waning but conditions are right for a good year for business
Small businesses today are struggling and their optimism is waning. Or are they? Yes: the closely watched Small Business Optimism Index from the National Federation of Independent Businesses dropped in January to a level of 97.1, well off its recent peak of 102.5 in June 2021. Yes: when you ask small businesses about their challenges they’ll name quite a few, from rising costs and supply chain problems to finding and retaining people in this tight labor market.
Yes, there is a lot of uncertainty right now. It’s an election year. The stock market is very volatile. Oil prices – partly driven by the Russia/Ukraine war – are rising. The Great Resignation of employees is being usurped by the Great Turnover … of customers. There are more rules and regulations and, of course, there’s that sneaky Covid and who knows what variant is going to suddenly appear and drive customers and employees back inside their homes, shivering with fear behind their masks?
It wouldn’t surprise me to see the NFIB’s optimism index for February take another dip when the new report is released next week. It’s been a tough winter. But things are going to turn around quickly for small businesses, which is why I predict that the decline in small business optimism will be only temporary. Why? Because 2022 is shaping up to be a good year for most small businesses, and here’s why.
For starters, those companies hurt most by Covid will see brighter skies this year. Airport travelers are still off 20% and diners in cities like New York are down as much as 40% compared with pre-pandemic levels, so there’s much room for recovery. Las Vegas visitors remain almost 30% lower from the beginning of the pandemic and hotel occupancy nationwide lags 16% from pre-Covid levels. This means that there’s nowhere to go but up for small businesses relying on the travel, food and conference industries. And up it will go in 2022.
Many companies, from Microsoft and Facebook to financial services firms on Wall Street, are already planning to open up their offices in the next month or so, which will bring hundreds of thousands of workers back to eat lunch, get their dry cleaning done and shop for sundries at local stores in downtown areas that have been devastated by their loss of traffic. Restaurants will enjoy expanded outdoor eating space and a newfound appreciation of takeout and delivery services that will remain active.
The real estate market will continue to be strong thanks to a dearth of new housing and a demand for warehousing space. Homebuilder confidence dipped last month, but remains near all-time highs and a record 106,000 homes haven’t even been started. Housing prices are predicted to “re-accelerate”.
The number of ships waiting off the California coast has declined to the low 90s, a level down almost 50% from just a few months ago as supply chain problems ease. Industrial production is rising and manufacturing and service levels remain at historically high levels. Personal income and spending are up and are predicted to continue rising. Retail sales are at record levels.
Capital is also readily available for small businesses that need it. Demand for Small Business Administrationbacked loans for working capital and growth is strong. Loan approvals at traditional banks are on the rise. Other forms of financing – from short-term loans to merchant advances – remain fully available to small businesses.
Finally, as federal benefits disappear, schools normalize, health threats dissipate and wages increase, workers are being enticed back to the workforce. All those people working remotely have disrupted the labor market and created an opportunity for small employers who have embraced flexible scheduling and cloud-based technologies and are happy to now find talent outside their local areas and adjust to a new workplace of online meetings and virtual collaboration.
So yes, small business optimism has taken a dip. But just wait. That number will rise again very shortly as we put the pandemic in the rear-view mirror and look forward to a very busy (and hopefully profitable) year or two.