The U.S. economy continues to grow but is it lifting all boats? And perhaps more importantly for small business owners, are they optimistic about their future?
Every month, we track the perceptions of small business owners about current and future economic conditions, including their perceptions of the general economy, hiring expectations, and inflation in the Thumbtack Economic Sentiment Survey. We receive between 15,000 and 20,000 usable responses from very small (5 employee or fewer) service businesses per month, allowing us to drill down to provide a detailed, ground-level view of the economy in dozens of cities and states.
The data is published through the Bloomberg professional service and detailed information on the methodology and sample are here.
We officially launched the survey in May of 2015, and on its six-month anniversary we wanted to do a look back at what the data we’ve collected says about small businesses and the economy.
Economic Recovery Reflected in Views of Small Businesses
Thumbtack first began collecting Economic Sentiment data in December 2012. Since that time, the economy has shown a slow and steady recovery that has been reflected in the attitudes and perceptions of Thumbtack pros.
Our headline Small Business Sentiment Index improved from December of 2012 to March of 2015, with a dip in September of 2013. Since March of 2015, when we began collecting monthly data, we’ve seen a steady deterioration in sentiment of our Thumbtack pros, which levelled out in the past two months.
Through nearly three years of data there has been a seasonal decline through the summer, followed by a recovery in the fall and winter. Based on this we’d expect to see a rise in the Index over the next several months. However, this summer, something deeper has been happening.
Perceptions of Expansion and the Economy Declining
Our Sentiment Index is a composite of active Thumbtack professionals’ opinions on their current business conditions, future business conditions, and perceptions about things like prospects for expansion and the economy. While their perceptions of the current economy and their current financial situation have been flat this year, perceptions of the future have been steadily declining throughout 2015.
Responses to our question about the future financial conditions of small firms peaked in March at 89.9 and have since fallen off to 83.6 last month. Meanwhile, responses to our question about the current financial condition have held steady near their April high of 67.9 and 67.5 today.
Meanwhile, perceptions of future economic conditions have fallen off drastically since March, but are still elevated from previous periods:
Hiring activity has picked up, although small businesses’ expectations of hiring consistently lag behind their actual reported hiring practices:
We also ask pros to tell us their number one problem facing their business today. Since adding these two as options in June, our survey respondents have consistently told us that their biggest problem is acquiring new business and competition from other small businesses:
In addition, we give businesses the chance to tell us their thoughts on the current economy – what’s noteworthy about the concerns of the small businesses who respond to our survey is their focus on macroeconomic variables that don’t relate to the fundamentals of their business. Throughout the summer, many businesses cited things like the upcoming U.S. election, the threat of rising interest rates, or the movement in the Chinese yuan as factors that affect their outlook on their business.
Small Businesses Provide Insights into the Economy
We wanted to know more about what the views of these pros could tell us about the economy. So we looked back over the last 2.5+ years of data and compared our survey responses to a handful of other economic indicators to see what we can learn.
Compared to two other major sentiment indexes, the Thumbtack Index has been less volatile in month-to-month variation. Here the Thumbtack Sentiment Survey is compared to the NFIB Survey and the Michigan Consumer Sentiment Survey, with each indexed to 1 in December of 2012:
In addition, we ran a few bivariate regressions to determine if there were any predictive value to any of the survey data we were collecting. We found that the predictive value of our Index was high, and will be writing more on that in the coming weeks.
Presented below are the correlation coefficients for Thumbtack’s Small Business Sentiment Index from December of 2012 to October 2015 and a handful of key economic indicators, sorted by the strength of the correlation:
|Correlation with Thumbtack's Small Business Sentiment Index|
|University of Michigan: Index of Consumer Expectations||0.91|
|University of Michigan: Consumer Sentiment||0.9|
|Real Personal Consumption Expenditures: Services||0.83|
|University of Michigan: Current Economic Conditions||0.82|
|All Employees: Total Private Industries||0.81|
|All Employees: Private Service-Providing||0.8|
|Real Retail and Food Services Sales||0.79|
|University of Michigan: 1yr inflation expectations||-0.79|
|Civilian Unemployment Rate||-0.78|
|All Employees: Total Nonfarm Payrolls||0.75|
|Real final sales to domestic purchasers||0.73|
|Real personal consumption expenditures: Services: Household consumption expenditures||0.73|
|Real Personal Consumption Expenditures||0.72|
|Retail Sales: Total (Excluding Food Services)||0.7|
|Real Gross Domestic Product, 3 Decimal||0.68|
|University of Michigan: 5yr inflation expectations||-0.6|
|ISM Non-manufacturing: NMI Composite Index©||0.47|
|ISM Non-manufacturing: Business Activity Index©||0.4|
|ISM Manufacturing: PMI Composite Index©||-0.35|