Small business sector senses recovery, furniture tides rise

by The City Wire staff ( 17 views 

The small business sector has languished in the ongoing economic recovery well behind big business that has pushed Wall Street stocks to new highs this year. But a recent report by Wells Fargo indicates the tide is turning for small businesses. 

After jumping 21 points in the first quarter of this year, the Wells Fargo Small Business Index edged up an additional two points during the second quarter. All of the second quarter’s improvement came in the expectations series, which rose four points to 33. 

The only hitch in the report was that small business owners’ views on the present situation slipped two points during the quarter to 14. This drop may have been tied to the unusually harsh winter weather experienced in much of the country this year, which cut into sales and boosted expenses for many businesses, according to Mark Vitner, senior economist at Wells Fargo.

Despite the small drop, the overall index trended higher during the quarter and is now at its highest level in six years. More business owners see conditions improving this year than at any other time since the recession ended. The rise in optimism is also reflected in attitudes toward capital spending and hiring, which both improved during the quarter.

About one in three small businesses surveyed said revenues stayed essentially the same over the past year, which is the highest reading in the survey. Another 21% said revenues decreased a little over the past year and 11% said revenues decreased a lot. The proportion of businesses reporting that year-to-year revenues increased has remained fairly stable at around 36% for the six quarters, Vitner noted.

One of the small business sectors showing optimism is furniture and home furnishing companies. After several years of slow growth, furniture executives that finance consumer purchases are more optimistic about the future of their sector.

Mike Hudgens, an executive with CIT Commercial Services, a finance company that makes loans to small businesses and middle market companies, said a rebound in housing has furniture companies expecting growth this year."

“Our furniture sector clients are doing well and feel confident about the future,” said Hudgens. “Optimism is the highest we’ve seen in years, and it looks like the market should continue on an upward swing, though it may never comeback to the extent it was prior to the recession.”

With growth in the housing market and increased jobs numbers, many American consumers who postponed furniture purchases may replace their older furniture units. He said the merging of furniture with smartphones and tablet technology, are taking root to meet consumer demand. Furniture with these innovations are being sold through non-traditional channels and seeing solid success.

James Smith, founder of Springdale-based James+James, said his custom wood furniture business continues to grow as more consumers are willing to purchase furniture online. His e-commerce furniture manufacturing operation has grown from two to 15 people since 2011, and he’s selling and shipping furniture to consumers in 45 states, Bermuda and Canada. He plans to add a retail space for his furniture in the Dallas market later this year.

Smith built his company through social media (Facebook and Pinterest) and continues to glean new customers each week from shared posts of satisfied customers.

“It’s hard for me to gauge how much my company will grow this year, given the rapid run we have already experienced,” Smith said.

The company grossed about $250,000 in sales in 2012, before offering delivery. In 2013, sales revenue grew to $1 million and Smith’s best estimates for 2014 is $1.5 million. He attributes the growth to more people getting comfortable with online purchases of furniture and the desire for custom American made real wood products.

“The 30-somethings are just now starting to buy furniture outside of Walmart and Ikea and they are shopping online for custom pieces that are made in the U.S. by small businesses like us,” Smith said.

Smith said it’s good to see the small business sector responding positively because it’s important to the overall economic growth of the local region and beyond.

The slow recovery of small business confidence as a whole continues to lag pace behind previous recoveries, Vitner said. The level of small business confidence is still about half of what it was prior to the recession. Small business confidence has recovered much less rapidly than CEO confidence, which likely reflects the greater ease and access that large companies have to the capital markets.

Vitner said it’s harder for small businesses to repair their balance sheets given that top-line revenue growth has been sluggish. Even with the slower recovery, Vitner said small businesses are spending more than last year, marking the first positive reading for this measure since the first quarter of 2008.

The rise in optimism also extends to capital spending and hiring, with more small business owners planning to increase capital spending and increase employment than any other time since the recession ended five years ago.