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Small-Business Owners' Confidence Falls in June

August 10, 2005|From Reuters

A quarterly U.S. survey of small-business owners shows that confidence and optimism have fallen, matching a low in 2004, in part because of worries over record gasoline prices.

The Wells Fargo/Gallup small-business index fell to 99 in June from 110 in March. That matched the level in September 2004 and is the lowest since a 93 reading in December 2003.

"Small-business owners are closer than a lot of Wall Street to the average consumer," said Dennis Jacobe, the Gallup Organization's chief economist. "When they see what higher pump prices are doing to consumers' ability to buy, I'm not surprised their future expectations have declined."

The average U.S. retail gas price last week reached a record $2.37 a gallon, up 49 cents from a year earlier, according to a U.S. Energy Information Administration survey.

Seventy percent of small-business owners said their companies' financial situations were "very good" or "somewhat good," down from 72% in March. Seventy-eight percent had positive outlooks for the next year, down from 82%.

Fifty-eight percent said cash flow was very good or somewhat good over the last year, the lowest since the index began in August 2003, and 70% had similar expectations for the next year, the lowest since December 2003.

Seventeen percent expected to cut capital spending over the next year, the highest since March 2004.

Another concern is rising interest rates, which might affect borrowing demand.

The Federal Reserve on Tuesday raised its federal funds rate a quarter of a percentage point, to 3.5%.

"Small-business owners are less optimistic about interest rates, which as shown today continue to rise," Jacobe said. "There is concern the economy may not be as strong as a lot of people are assuming."

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