Small business survey Q3: Some incremental improvement but still a long road to recovery

Small business owners are learning to live with the drag on economic activity resulting fromefforts to contain the coronavirus. The Wells Fargo/Gallup Small Business Index rose 12 points during the third quarter to 60. The increase was entirely due to a rise in expectations for future conditions, which rose 32 points to 41. Business owners' assessment of current conditions fell 20 points during the quarter, falling to 19 from 39. The Wells Fargo/Gallup Small Business Index is calculated from a survey of small business owners' view on present conditions and future expectations of their overall financial situation, revenue, cash flow, capital spending, staffing levels and access to credit. The index hit an all-time high of 142 during the fourth quarter of 2019 before plummeting 94 points over the next two quarters, as states across the country shuttered much of their economy in order to contain the spread of COVID-19.

The rebound in small business confidence follows the gradual reopening of the economy in many states and closely tracks the decline in initial unemployment claims and rise in the stock market. The 20-point drop in business owners' assessment of current conditions likely reflects concerns about the rise in COVID-19 infections across much of the Sun Belt this summer as well as the widely covered civil unrest that accompanied some of the social justice protests across the country this summer. After bottoming in mid-April, most of the high-frequency data that we track—such as OpenTable restaurant dinners, TSA checkpoint throughput, Apple and Google mobility data, and information on the share of small businesses that are currently open, as well as staffing levels and hours worked—rose in May and early June but have since leveled off or even retreated slightly in a few markets that were hardest hit by the resurgence in COVID-19 cases.

Many of the states hardest hit by the summer resurgence in COVID-19 cases rank among the largest states in country, including the top three: California, Texas and Florida. Business re-openings were rolled back somewhat in parts of all three states, while the fourth largest state—New York—endured a spike in COVID-19 cases earlier and gradually saw businesses reopen over the summer.

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