Despite strong economy, small business owners stay cautious

Although the economy is strong and consumers are optimistic, many small business owners are holding fast to their cautious approach to expansion.

The government's latest estimate of second-quarter economic growth, released last week, showed that the gross domestic product grew at an annual rate of 4.2 percent. Meanwhile, the Conference Board's consumer confidence index rose to an 18-year high last month.

But economic growth slowed in the just-ended third quarter to between 3 percent and 3.5 percent, economists say. That's still strong, but their projections reflect an expected drop in exports. And some economists believe growth will continue to slow in the coming years as the impact of the tax cuts and increased government spending this year begin to fade. And the Federal Reserve, which last week raised interest rates for the third time this year, is trying to ensure that growth doesn't get out of hand.

Despite an economy that's generally doing well, small business owners are staying conservative, the stance they've held since the Great Recession. That's the finding of a third-quarter survey of companies by researchers at Pepperdine University's Graziadio School of Business and Management and Dun & Bradstreet Corp.

The survey found that just a third of small businesses, those with under $5 million in revenue, plan to raise financing in the next six months. Forty-three percent don't plan to raise financing, and 23 percent aren't sure what they'll do. When companies expand, they often seek financing for new equipment, property or employees.

An index showing demand for financing rose 2.4 percent from the second quarter, but that was down nearly 7 percent from the first quarter.

Owners base their growth decisions on how much revenue they're taking in. And 7.9 percent are projecting higher revenue, in line with the 7.8 percent making that forecast in the second quarter but down from 10 percent in the first quarter.

Some owners have said they're concerned about the impact of the Trump administration's trade tariffs on goods imported from China and Europe, and the retaliatory tariffs countries have imposed on U.S. goods. The drop in exports economists expect would be due in part to the fact that companies and farmers rushed to ship their products before U.S. tariffs took effect, and exports will now fall back to more normal levels.

Meanwhile, U.S. importers, manufacturers and retailers are concerned that their profits will be hurt by tariffs on raw materials and finished products from other countries.

Still, small business owners are upbeat about their companies' performance; in the Pepperdine/Dun & Bradstreet survey, only 11 percent said they expected their companies would do worse this year than in 2017.

The results were based on a survey in July of 657 business owners with revenue up to $100 million; researchers broke out findings for companies with revenue of $5 million or less.


For more small business news, insights and inspiration, sign up for our free weekly newsletter here:


Follow Joyce Rosenberg at . Her work can be found here: