Union Bank Small Business Survey Finds Concern about Economy

  
    
  
  
    
      A survey released today by Union Bank of California, N.A., shows that 
      small business owners have grown increasingly cautious as the economic 
      climate has become more uncertain. That caution is impacting respondents’ 
      profit outlooks for the year as well as spending and hiring plans.
    
    
      California’s economy was the No. 1 challenge 
      facing small business owners surveyed in January, replacing workers’ 
      compensation costs, which held the top spot since 2004.
    
    
      The bank’s annual survey, which has been 
      tracking trends among small business owners for the past eight years, 
      found 52 percent of respondents statewide believe 2008 will be more 
      profitable than 2007, a 15 percentage-point decline from last year’s 
      results. Half (51 percent) of the respondents reported greater sales in 
      2007, a 12 percentage-point drop from the previous year.
    
    
      Respondents are showing caution with capital expenditures as the economy 
      slows. Only 26 percent plan to increase spending on equipment and 
      building improvements in 2008, while the majority (62 percent) plan to 
      spend the same amount.
    
    
      Another area where the majority of respondents plan to keep expenses the 
      same: staffing levels. Seventy-one percent expect to maintain their 
      staffing levels in 2008. Only 23 percent plan to add positions this 
      year, a 7 percentage-point decline versus 2007. In 2006, 36 percent of 
      respondents expected to add staff.
    
    
      While most small business owners surveyed are not expecting to hire new 
      employees, the majority is not planning layoffs, either. Ninety five 
      percent of respondents said they do not anticipate layoffs in 2008. 
      However, 10 percent of those surveyed in January said they were forced 
      to layoff employees for economic reasons last year.
    
    
      “This annual survey is an excellent barometer 
      of issues facing small business owners,” said 
      Union Bank of California’s President and Chief 
      Executive Officer Masa Tanaka. “While the 
      group surveyed has become increasingly concerned about California’s 
      economy, a majority still expects an increase in profits in 2008. That’s 
      good news for California as a whole because small business is a powerful 
      driver of the economy.”
    
    
      The subprime mortgage crisis does not appear to be having a widespread 
      impact across the state. Approximately 50 percent of respondents said 
      they have seen no impact from rising foreclosures. However, for those 
      respondents who have noticed a dip in business, the biggest impact has 
      been felt in Riverside and San Bernardino counties. In Riverside, 39 
      percent of respondents said customers are spending more conservatively. 
      In San Bernardino, 45 percent have seen customers spending less. That 
      compares to 35 percent statewide.
    
    
      Those figures mirror recent foreclosure data released by real estate 
      tracking firm RealtyTrac that shows the Riverside-San Bernardino metro 
      area had the fourth highest foreclosure rate among the country’s 
      largest 100 metro areas in 2007.
    
    
      While the California economy has become the No. 1 challenge of nearly 50 
      percent of respondents, up 15 percentage points from 2007, worry about 
      rapidly increasing workers’ compensation 
      costs has declined. Thirty three percent of respondents surveyed are 
      concerned about workers compensation costs, down from 43 percent in 
      2007. Small business owners surveyed ranked state and local business 
      taxes as the third biggest challenge (26 percent).
    
    
      The workers’ compensation crisis appears to 
      have decreased as a major issue on several fronts. In addition to moving 
      down on the list of challenges facing small business owners, only 19 
      percent of respondents said workers compensation insurance costs 
      increased in 2008 compared to 20 percent in 2007. The majority – 
      65 percent – said their insurance premium 
      remained the same, while 16 percent said costs declined.
    
    
      For the third year in a row, a majority (55 percent) of business owners 
      indicated that they do not offer healthcare coverage to employees, up 
      from 52 percent in 2007. Santa Clara County continued to buck the trend, 
      with 73 percent of its small business employers offering healthcare 
      benefits.
    
    
      For those employers that offer healthcare benefits, 40 percent said 
      rising healthcare costs have not impacted their business, while 24 
      percent said they have shifted a larger portion of healthcare costs to 
      employees or reduced health benefits.
    
    
      Retirement benefits and 401(k) plans are scarce among small business 
      owners surveyed. Only 17 percent offer 401(k) plans and 12 percent offer 
      retirement benefits. The most common benefit offered is vacation pay (62 
      percent).
    
    
      In spite of the cautious outlook for 2008, respondents believe 
      opportunities for growth continue to be the No. 1 advantage of doing 
      business in California (28 percent). Family ties ranked No. 2 (22 
      percent) and climate No. 3 (17 percent).
    
    
      Like many in the country, the small business owners surveyed are 
      monitoring the presidential election. Forty-eight percent said they are 
      paying closer attention to this year’s 
      presidential race compared to previous years.
    
    
      Survey Methodology
    
    
      The Union Bank of California annual Small Business Survey was conducted 
      through individual interviews of nearly 2,000 small business owners from 
      Jan. 7, 2008 to Jan. 18, 2008 throughout California. For purposes of the 
      survey, Union Bank defined small businesses as businesses with annual 
      revenue of $15 million or below.