Owners of Small Manufacturing Businesses Turn Pessimistic

Business owners report cash flow issues, few plans to hire.

Just 34% of small business owners in the manufacturing sector have an optimistic outlook on the economy, compared to 52% six months ago, according to the American Express OPEN Small Business Monitor, a semi-annual survey of business owners with less than 100 employees. Some 35% identify themselves as "survivors," compared to 29% who describe themselves as "opportunists."

Contributing significantly to their pessimism are cash flow concerns. Some 71% of these manufacturers cite cash flow issues, up from 47% last fall, with 66% reporting concern about their ability to pay bills on time. Compared to retailers and service providers surveyed, manufacturers have been the group least likely to cut expenses. In fact, manufacturers led the three groups in offering healthcare insurance (75% vs 55% for retail and 66% for services).

Manufacturers are also the least likely (19%) to have hiring plans, down from 30% six months ago. Just over a third report they plan to make capital investments.

Despite the challenges they face, 74% of manufacturing entrepreneurs believe managing through the recession has made them better business owners. Among the steps they have taken to cope with the recession: Hiring freeze (63%), salary freeze (55%), reduce employee hours (42%), lay off employees (38%) and allow employees to maintain a flexible schedule (38%). Some manufacturing owners also have stopped taking a salary (29%) and tapped personal assets (35%).

Manufacturing owners led the other sectors in reporting that they were on track in saving for their own retirement (46%) and that they have a succession plan (48%).

Overall, 4 in 10 business owners have an optimistic outlook on near-term business prospects, on par with one year ago when the macroeconomic climate was significantly different. Nearly 4 in 10 entrepreneurs feel the current economic environment creates opportunities for their business.

"There is no doubt the struggling U.S. economy has tested business owners' resilience, but the entrepreneurial spirit remains strong and innovative said Susan Sobbott, president, American Express OPEN. "It is a positive sign that optimism -- often a leading indicator for business growth -- is at levels comparable to last year, suggesting a rebound in business owners' perspectives and their renewed focus on finding the opportunities even in our battered economy."

American Express OPEN Small Business Monitor, released each spring and fall, is based on a nationally representative sample of 727 small business owners/managers of companies with fewer than 100 employees. The anonymous survey was conducted via telephone by Echo Research from February 24-March 9, 2009. The poll has a margin of error of ±3.6%.

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