Small Business as a Leading Indicator for the Economy

I recently met with the President of a large national bank. He asked me whether small and midsize businesses were seeing any change in the economy. He seemed surprised when I said that many of the SMBs I dealt with were optimistic and experiencing an uptick in business compared to the beginning of 2003. He said that larger companies in Northeast Ohio that he spoke with were not reporting a significant increase in business.



But his report and mine are not necessarily at odds. In fact, I would suggest that the two reports make perfect sense.



Small business is a leading indicator in the economy. Why? Smaller enterprises are simply more sensitive to changes in the economy. They feel the effects of an improvement sooner than their larger counterparts.



The smaller the business, the less it takes to make a big difference. Even a handful of new orders can make a significant impact on a small business on a percentage basis. Larger businesses need many more new orders before the impact becomes pronounced.