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Small Business Optimism Sinks as COVID-19 Rages, New President Takes Office

Donna Fuscaldo
Donna Fuscaldo
business.com Staff
Jan 19, 2021

Small business owners are pessimistic about the coming months, but there are reasons to be optimistic over the longer term.

Small business confidence is sinking as the COVID-19 pandemic continues to rage and the Biden administration gears up to take office.

With the country in turmoil and vaccinations rolling out slowly, small business owners are concerned about the next few months and the impact it will have on their enterprises. That's despite the expectation that business will improve once vaccinations are widely available and some sense of normalcy resumes.

In December, sentiment among small business owners polled by the National Federation of Independent Businesses fell 5.5 points to 95.9. This marks the first time since 1973 that the NFIB Small Business Optimism Index has fallen below 98 in December. Business owners who expect better business conditions over the next six months fell 24 points in the December NFIB survey, to a net-negative 16%. Calling the drop "historically very large," NFIB Chief Economist Bill Dunkelberg blamed the loss of confidence among small business owners on the spread of COVID-19 and the potential for new economic policies under a Biden White House.

The pandemic has winners and losers

Throughout the pandemic, small businesses have been split between those that are surviving and thriving and those that are barely staying alive. Business-to-business enterprises are faring much better than consumer-facing ones, particularly in entertainment and hospitality. It's the latter group that is growing more pessimistic as the potential for more COVID-19 deaths and shutdowns weighs on their minds. It doesn't help that it took Congress months to approve the most recent stimulus package. It's not clear if more will be necessary and if small businesses will get it.

"Our data shows 50% of small businesses are ranging from doing OK to pretty well, and 50% of small businesses aren't doing well at all," said Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce. "We're talking about 50% of America's small businesses that are hurting." 

The recent MetLife & U.S. Chamber of Commerce Small Business Index found that the majority of small businesses expect more pain to come. They believe it will take six months to a year for the small business environment to return to normal.

"To see 62% of folks who have gone through one of the worst nine months say it will get worse is really scary," Sullivan said.

COVID-19 and new president drive pessimism

There's no question that the COVID-19 pandemic is driving much of the decline in small business confidence. As the number of people who are sick and dying spirals out of control, it's not clear if business owners will face more shutdowns and restrictions. It's hard for businesses to plan for the future when the present is so uncertain.

But on top of the pandemic, small business owners are worried about what a Biden presidency will bring. It marks the first time in years that the Democrats control the presidency, House and Senate. A recent CNBC and SurveyMonkey poll of small business owners found that 53% expect the Biden administration's tax policy to have a negative impact on their business in the next 12 months, while 49% pointed to government regulation as the likely problem. The results were split by party, with Republicans overwhelmingly in the negative camp and Democrats more optimistic about a Biden presidency.

Beyond the potential for new rules and regulations and changes to tax policies, politics aren't playing a big role in the sentiment among small business owners, despite a polarized country.

"The election of the president isn't high on the sleepless-night scale for small businesses," Sullivan said. "There is an enormous desire for them to put partnership aside and just help."  

The previous MetLife and Chamber of Commerce survey of small business owners highlights that point, with an overwhelming majority (82%) saying gridlock due to partisan politics is a serious problem and 68% saying they'd prefer political leaders to compromise to get things done.

Future still looks bright

While small business owners' confidence is down in the early days of 2021, a new presidency does bring hope and reasons for optimism. For starters, there's the likelihood of more stimulus money.

President-elect Joe Biden called the latest stimulus a down payment, and with the House and Senate stacked in the Democrats' favor, expectations are high that more aid is coming. That should increase optimism on the part of small business owners.

"If there is additional stimulus and something gets done fairly quickly, that's going to turn sentiment," said Philip Noftsinger, vice president of finance and corporate controller at CBIZ.

Stimulus money alone isn't enough to improve sentiment, however. As the NFIB's Dunkelberg noted, it's a "foot race between using up financial resources and getting the virus under control so the economy can open up and Main Street can get back to work."

The COVID-19 virus must be contained for businesses to reopen safely and for the economy to begin growing again. That's where the vaccine comes in, and it's a big reason why many small business owners feel optimistic about 2021 once we get beyond the winter months.

A recent Vistage survey of 1,500 CEOs of small and midsize businesses showed that 64% are planning to increase headcount in the year ahead, another 40% are getting ready to increase their fixed investments, and 67% anticipate sales and revenue will increase this year. CEOs expect business to resume growth once the majority of the population is vaccinated.

"The economy wasn't broken; it was shut down," said Joe Galvin, Vistage's chief research officer. "Once we get past the health crisis, we will see an economic surge."

Image Credit: Chalirmpoj Pimpisarn / Getty Images
Donna Fuscaldo
Donna Fuscaldo
business.com Staff
Donna Fuscaldo is a senior finance writer at business.com and has more than two decades of experience writing about business borrowing, funding, and investing for publications including the Wall Street Journal, Dow Jones Newswires, Bankrate, Investopedia, Motley Fool, and Foxbusiness.com. Most recently she was a senior contributor at Forbes covering the intersection of money and technology before joining business.com. Donna has carved out a name for herself in the finance and small business markets, writing hundreds of business articles offering advice, insightful analysis, and groundbreaking coverage. Her areas of focus at business.com include business loans, accounting, and retirement benefits.