American Entrepreneurs Aren't Hopeful Enough to Hire

(Bloomberg) -- Evan Hakalir, a self described optimist, feels good about the future of his 12-person company, which manufactures children's clothing. Still, the uncertain political climate nags at him.

"People are so caught up in politics and just waiting with bated breath as to what's going to happen next, waiting for the next shoe to drop," Hakalir said. He's trying not to let his concerns get in the way of operating Andy & Evan, which had retail sales of around $12 million last year.

A new report shows many small business owners are in a similar boat: trying to be optimistic but holding off on bold decisions in an ever-shifting political and social landscape.

The majority of small business owners said they expect their financial condition to improve over the next six months, according to Capital One's Small Business Growth Index, released on Tuesday. Despite this widespread optimism, about two-thirds of small business owners said they had no plans to hire, increase marketing spending, or invest in new technologies in the near future. Among the 500 entrepreneurs surveyed for the index over the last two months, half said they expect their business to be impacted by tax changes, 22 percent by minimum wage increases, and 9 percent by immigration reform. 

While small business owners as a whole aren't rushing to spend money, the youngest in this group are more willing to invest cash in their business. They're also the most excited about the future of their companies.

The index found that 72 percent of millennials, defined as those from ages 21 to 35, are optimistic about their financial outlook over the next six months, compared to 53 percent of Generation X and 49 percent of baby boomers. That high rate of optimism makes them a little more likely to spend: Some 42 percent of millennials plan to increase marketing dollars, compared to about 30 percent of other generations.

Holly Wade, director of research at the National Federation of Independent Business, attributed this to the excitement of being a new business owner, not just being a millennial. "They're working hard to translate their vision and what they see as market opportunities," she said of young business owners. "Likely—when you get older and have owned a business and run a business for many years—you see the larger picture, the larger reality of what you have to deal with as the business matures." 

Across all ages of small business owners, a cheery outlook on the future doesn't mitigate fear. "Optimism has continued to increase, but we also know that there is a lot of dismay and uncertainty about what's going to happen now," said John Arensmeyer, chief executive officer of the Small Business Majority, a national advocacy organization. "They're optimistic, but they're not investing." 

Taxes are on the forefront of these business owners' minds, as tax reform has been widely touted as imminent by the current administration. "When it comes to changes in the tax law, people are probably thinking, 'There could be massive changes coming down the pipe, we better hold off,'" said Arensmeyer. "'There's a lot of disruption and turmoil. We better wait and see.'" 

In its index, the National Federation of Independent Business also found that optimism among these owners is on the up and up, which the small business lobby attributes to excitement following the election. Thus far, that optimism is the result of expectations, not policy changes.

"If it doesn't translate into actually policy changes that relieve some of the cost pressures and time pressures that are restricting small businesses from growth potential, we will continue to see sluggish improvements in the small business economy," said Wade, the federation's director of research. "They have to deliver on these promises." 

To contact the author of this story: Polly Mosendz in New York at pmosendz@bloomberg.net.

To contact the editor responsible for this story: Francesca Levy at flevy6@bloomberg.net.