After two consecutive quarters of increased optimism, the latest Wells Fargo/Gallup Small Business Index survey revealed a decline in small business owner optimism from Q1 2011 levels. Conducted April 4-8, 2011, the Index score dropped 12 points from last quarter and now sits at a score of zero indicating that small business owners, as a group, are neutral - neither optimistic nor pessimistic - about their companies’ situations. Credit availability concerns remain unchanged with about one-third reporting that obtaining credit would be somewhat or very difficult. Fewer business owners demonstrate confidence in their financial situation, revenues and cash flow over the next 12 months.

“Weaker U.S. consumer spending in the first quarter, along with a spike in energy prices, is likely behind much of the slide in small business optimism since January,” said Dr. Scott Anderson, Wells Fargo senior economist. “On the bright side, for the second quarter, optimism remains above the negative territory we experienced throughout 2009 and 2010.”

The Index is the sum of the “present situation” (previous 12 months) and “future expectations” (next 12 months) of business owners for six key measures, including financial situation, cash flow, revenues, capital spending allocation, job hiring and credit availability.

The present situation declined slightly to negative 14 (-14) from negative 10 (-10) driven primarily by declines in financial situation and cash flows. The present situation score has been in negative territory since the first quarter of 2009.

Despite an eight percentage point decrease from 22 in January to 14, the future expectations component of the Index remains in positive territory. The decline was driven by decreased expectations for financial situation and cash flows.

“Business owners entered the New Year with increasing optimism, but it appears that slow economic growth is interfering with that momentum,” said Doug Case, Wells Fargo small business segment manager. ”Without clear signs of sustained economic growth, businesses remain cautious, and that caution translates into reduced hiring and expansion.”

Present Situation (past 12 months)

- Financial Situation – 47% rated their current financial situation as very or somewhat good, down from 53% in Q1; additionally 33% rated their current financial situation very or somewhat poor, up from 27% in Q1.

- Cash Flow – 38% rated their company’s cash flow as very or somewhat good, down from 43% in Q1; additionally 38% rated their cash flow as very or somewhat poor, up from 33% in Q1

Future Expectations (next 12 months)

- Financial Situation – 58% expect their company’s financial situation to be very or somewhat good, down from 65% in Q1; additionally 22% expect their company’s financial situation to be very or somewhat poor, up from 17% in Q1

- Cash Flow – 27% expect that their company’s cash flow will be very or somewhat poor, up from 22% in Q1

“Wells Fargo is committed to supporting business owners through the challenges and opportunities they face as a result of the economic environment,” said Case.