Optimism for economy low, survey finds

Owners of small businesses have low expectations about economic growth in the next six months, a new survey has found.

The Open from American Express Small Business Monitor found that optimism about the economy in the near term hit its lowest point in the report's six-year history.

The statistics matter because entrepreneurs' feelings about the future reveal how they might make decisions affecting the broader economy.

"Business decisions are emotional, so it's very important to take the temperature of business owners' emotions if you want to understand the market," said Alice Bredin, small-business adviser of Open from American Express, which specializes in credit cards and other financial tools for smaller companies.

Nationwide, just 45 percent of people who own businesses with fewer than 100 workers said in March that they feel good about the next six months, the Small Business Monitor found. That's down from 67 percent in spring 2007, and well below a survey high of 85 percent in spring 2005. The share of business owners who believe the economy will improve in the next six months plunged to 9 percent -- its lowest level yet. A year ago, 21 percent of entrepreneurs expected better times in the half-year ahead.

The report doesn't break down numbers among cities, but its regional results pointed to slightly higher expectations in the West. Just 36 percent of company owners surveyed nationwide said they foresaw corporate growth regardless of economic conditions, while 44 percent of entrepreneurs in the West predicted expansion independent of economic indicators.

Still, the majority of small-company owners regionally and nationally don't plan on growth soon.

The downbeat outlook likely comes more from uncertainty than from any specific economic troubles among smaller operations, Bredin said.

Costs for commodities such as fuel and food are spiking, creating bigger expenses for small businesses. At the same time, consumers struggling to cover household expenses are reining in spending on discretionary items. The result: Questions about whether sales will materialize in coming months.

"There's been some pressure on people's pocketbooks, so it's natural for business owners to be concerned about whether their customers will have enough resources to buy their products," Bredin said.

A sales gain of 35 percent in the last year hasn't convinced local executive Clifford Flowers that the rest of 2008 will yield big business.

Flowers, president of Alternative Parts Supply in Henderson, is eyeing the casino industry's fortunes, as his business, which supplies spare parts for slot machines and other gaming equipment, relies on a vibrant tourism sector.

And these days, Flowers said, he's "a little concerned."

Alternative Parts Supply is grappling with a 25 percent jump in metal prices over the last three to four months. Visitor volume into Las Vegas has faltered in recent months, including a 1 percent drop in March, according to new numbers from the Las Vegas Convention and Visitors Authority. Also, major resort operators including Station Casinos, MGM Mirage and Harrah's Entertainment have laid off hundreds of employees since January.

"We're worried that gaming will slow down to the point of no growth, and no growth in gaming probably means no growth in our business," Flowers said.

Despite widespread unease, Open's survey found most businesses -- about 70 percent -- plan to invest in growth through the third quarter, perhaps by hiring more workers, buying new equipment or spending additional marketing dollars.

If those expenditures seem at odds with prevailing entrepreneurial sentiments, then consider the makeup of your typical entrepreneur, Bredin said.

"Business owners are so nimble," she said. "If it's not working for them to grow their companies according to the plan they had in place a year ago, they have the personality type to retool their plans to come up with a growth strategy that fits the current economic situation."

Flowers said he'll hold the line at his current three employees, but he'll probably spend more on sales and marketing this year. To boost promotions, he'll share resources with sister company Sheet Metal Solutions, a manufacturer in Las Vegas.

"Even though the economy is depressed, I don't think it's a really prolonged depression," he said. "A lot of bounce-back will happen. It's just a matter of when."

Mark Norton, president of Liquid Assets, also expects to expand in the next few months.

Business is strong for Liquid Assets because Las Vegas is nearing its hot season, when consumers grab more of the daiquiris, margaritas and Slushees the five-employee company supplies. The Henderson business, which sells drink mixes and drink-making equipment, will at least buy more drink makers to distribute to casinos and convenience stores, Norton said.

Norton said he's hopeful business will remain solid in the near term: "Even when people can't afford vacations, they can still afford to give their kids money for Slushees."

It's wise to spend on growth in down times, Bredin said.

Office space, modular furniture, business equipment and even employees all become more affordable when the economy retrenches. Businesses seeking top talent could find it's easier to land hot recruits today, with unemployment up and wages flat.

It's also an ideal time to reconsider streamlining operations.

"Look at collections, look at accounts receivable, and make sure you're running a really tight machine," Bredin said. "Business owners should be doing that in boom times as well, but no one puts energy into it when times are good."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.