Small Business Confidence Rises As Business Owners Shake Off Tariffs

Main Street appears to be far less impacted by the intensifying trade frictions than Wall Street. Wells Fargo's Small Business Optimism Survey showed business owners were more optimistic about both the present economic situation and future business conditions. Overall small business optimism rose seven points during the third quarter to 136.

While the overall index increased notably the past two quarters, data from earlier this year were depressed following the stock market sell-off last December. The current survey was completed well before the recent market volatility surrounding the extension of tariffs on the $300 billion of Chinese goods not already covered by tariffs. Our survey asked business owners how tariffs were impacting their business. While business owners are paying close attention to the trade dispute, the overwhelming majority of owners stated tariffs have had little or no impact on their business, and few expect tariffs to negatively impact their business going forward. Owners are more concerned about the knock-on effects intensifying trade frictions have on the financial markets.

The Wells Fargo/Gallup Small Business survey has been conducted quarterly since 2003. The latest survey was taken July 8-12. New methodology was used beginning in the second quarter, as the survey moved from a telephone-based survey to a web-based model. The methodology change means comparisons with prior data should be viewed cautiously. The second quarter rebound makes intuitive sense, as the first quarter survey was taken in early January and reflected the late 2018 stock market sell-off. The second quarter rebound brought the index back to its level from two quarters earlier, while continued improvement in the current quarter is consistent with broader measures of economic activity and the most recent Consumer Confidence survey.

The close link with consumer confidence surveys is understandable. The majority of business owners surveyed in the Wells Fargo/Gallup Small Business Survey have annual sales of $2 million or less. A small portion of the businesses have sales between $2 million and $20 million. Firms surveyed in the Wells Fargo/Gallup survey are much smaller than those in the monthly NFIB survey.

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