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Small Business Sentiment Drops, Says Finance Survey

The sentiment of small businesses declined recently, according to the latest i

The sentiment of small businesses declined recently, according to the latest installment of a finance survey conducted by financial services giant Wells Fargo and Gallup Inc.

The most recent quarterly rendition

The sentiment of small businesses declined recently, according to the latest installment of a finance survey conducted by financial services giant Wells Fargo and Gallup Inc.

The most recent quarterly rendition of The Wells Fargo/Gallup Small Business Index, which is based on survey data that was collected between July 9 and July 13, 2012, dropped by six points to a reading of positive 17. Even though the index dropped this quarter from the previous three-month period, business owner optimism was substantially higher than its Recession low reading of minus 28 that was reached in the third quarter of 2010.

Balance sheet expectations

The fraction of business owners who predict they will be in a strong financial position during the next 12 months dropped 7 percent to reach 59 percent, and the share of these market participants who believe their revenue will rise over the next 12 months dropped by 6 percent to reach 43 percent.

Capital spending expectations

This latest quarterly version of the survey contained questions designed to measure how business owners feel about capital spending. A slim majority, or 53 percent of these entrepreneurs stated that they have taken part in capital investments during the most recent 12 months, with 70 percent stating that they had bought either new equipment or machinery.

Around two-fifths, or 41 percent, specified plans for making capital investments in the next 12 months. Economic uncertainty was the biggest reason given for these business owners not making investments of this type.

"Business owners have a lot of unknowns in front of them today," Doug Case, Wells Fargo small business segment manager, said in a statement. "This is the first drop in the Index this year and it seems to correlate to the lower percentage of business owners planning to invest in their companies in the year ahead. In the survey, businesses said they'll be more likely to invest in their businesses when they see improvements in their operating environment, and better sales and revenues."

Preferences of those planning to invest

Of the small business owners who indicated that they plan to make capital investments over the next 12 months, almost two-thirds, or 64 percent, stated that they plan to put their funds in new equipment and machinery.

The global economic uncertainty that has been felt by many market participants has decreased somewhat in the last few weeks, as news of strong U.S. productivity and a pledge by European Central Bank President Mario Draghi to keep the euro intact helped to bolster sentiment. 

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