The nationwide panic over the fiscal cliff at the end of 2012 gave way to dismay at the sequester that arose to begin 2013. Government agencies everywhere are being forced to tighten their belts, and those cuts will inevitably trickle down to the small business world soon enough. And yet so far, the effects haven't been felt – financial services are still going strong for developing companies, as many entrepreneurs continue to go about business as usual.
Reuters recently reported a significant climb in the National Federation of Independent Business' (NFIB) optimism index. After plunging in November to a two-year low, the rate continued to rise again, rising 1.9 points in February. Now 90.8 percent of American small business owners are feeling good about the future.
Positive signs are everywhere. Capital spending plans were up 4 percent in February according to the NFIB research, inventory increase plans were up 6 percent and positive outlook for business conditions was up 2 percent. Business owners now have better perceptions of labor market conditions as well as sales and credit conditions.
The expectation was that as the federal government cut funding for major programs, the little guys would also feel the pain. According to Small Business Administration data reported by CBS News, the Pentagon awarded 20 percent of its prime contracts and 35 percent of subcontracts to small firms in 2011 – that meant the majority of American defense spending profited smaller companies, and those companies would suffer if a large chunk of their business was swept away. A George Mason University forecasted dire effects – more than 2 million jobs lost.
"Many small businesses are subcontractors, suppliers and vendors to larger-scale businesses that are the prime federal contractors," George Mason economist Stephen Fuller said. "These subcontractors, suppliers and vendors have little recourse when their contracts with their primes are scaled back or terminated."
Small businesses may not be in the clear just yet. NBC News reports that a "rolling, accumulated impact" may occur over the coming months, with companies having difficult decisions to make about layoffs.
But the situation might be less desperate, and the solution less difficult, than thought. Savvy business owners may find that simply being cautious about spending and hiring, avoiding large unnecessary expenditures, might be enough to make it through this fiscal scare unscathed.
Spending may be down, but morale is still up in the small business world. The goal from here is to keep it that way.