Many CEO's and Business Owners Are Caught in Holding Pattern

Economic and political uncertainties—including the coming elections, the so-called fiscal cliff and the shaky European market—are putting many small businesses into a holding pattern.

Roughly half of 799 heads of small businesses expect economic growth to remain sluggish in the year ahead, according to the August Wall Street Journal/Vistage Small Business CEO Survey.Many small business chiefs said they're not planning to boost hiring or increase investment spending any time soon.

Only 37% said they planned to increase plant and equipment spending within the next 12 months, for instance. That is up from 36% in July, but still down from 40% in June, the survey found.

Additionally, fewer than half said they expect to hire new workers within the next 12 months, largely unchanged from July."It's very tough to have a clear view forward these days," said Ed Herinckx, president of HMHagency Inc., a Portland, Ore., marketing firm with 60 employees.

Mr. Herinckx said planning cycles have shortened among his firm's two-dozen clients—which include small and large companies in a range of industries, including Nike Inc., Louisiana-Pacific Corp. and Subway restaurants. Many aren't willing to make commitments beyond the next quarter, he says.

"We're only building to meet projected demand, rather than speculate," he added.

Launched in June, the monthly survey is aimed at gauging changes in the outlook of the heads of small U.S. companies.

Richard Curtin, a research director at the University of Michigan who analyzed the August results, said most owners are waiting for several key issues to be resolved over the next few months—not least the presidential elections in November—before committing any capital to new equipment or employees.

"There is substantial uncertainty out there," with many small-business owners asking themselves, 'Why make a big decision now?' " he said.


Many are postponing investments into their businesses until they have a sense of when and how the fiscal cliff will be bridged, which presidential candidate will prevail, and whether they might suffer as a result of the European financial crisis, he said.

Slightly more owners in August said they expect sales and profitability to improve, or at least remain steady, than in July—though not by enough to kick-start any significant business investments before year end.

Frank Flanagan, the owner of Sentry Control Systems Inc., a Los Angeles-based firm that automates parking-garage payment systems, said he's hoping to tap into growing demand from clients who are trying to trim operating costs through automation.

As a result, he said, his 90-employee firm is ratcheting up spending to boost production. "If we guess right, we can pick up market share," he said.

Sixty-five percent of respondents anticipate stronger sales in the next 12 months, and 50% said they expect profits to improve, according to the survey, fielded online from Aug. 13 to Aug. 24.

Only 9% are girding for weaker sales, while 17% expect to be less profitable.

The survey's small-business confidence index—a composite based on survey responses and benchmarked at 100—rose in August to 93.7, from 91.7 in July.

A monthly survey in July by the National Federation of Independent Business, a small-business lobby group, and a quarterly survey in July by Wells Fargo & Co., both found declines in optimism about the economy among small-businesses owners.

Click here for additional August results of The Wall Street Journal/Vistage Small Business CEO Survey.