Small business optimism remained flat leading up to Election Day, then rocketed higher as business owners expected much better conditions under new leadership in Washington, according to a special edition of the monthly NFIB Index of Small Business Optimism.
“What a difference a day makes,” National Federation of Independent Business (NFIB) President and CEO Juanita Duggan said in a press release. “Before Election Day small business owners’ optimism was flat, and after Election Day it soared.”
The NFIB Index of Small Business Optimism is one of the oldest and most widely respected economic research reports in the country. It is a survey asking small business owners a battery of questions related to their expectations for the future and their plans to hire, build inventory, borrow, and expand.
“This month we bifurcated the data to measure the results before and after the election,” NFIB Chief Economist Bill Dunkelberg said. “The November index was basically unchanged from October’s reading up to the point of the election and then rose dramatically after the results of the election were known.”
The full November index, calculated as it is every month, improved 3.5 points to 98.4, which is just above the 42-year average and only the third time since 2007 that it has broken into above average territory.
Plans to hire jumped five points from the previous month. Expected higher sales rose from a net one percent in October to net 11 percent in November. But the blockbuster was expected better business conditions, which shot from a net negative-7 percent to 12 percent.
“Even without separating the data, the November results paint a starkly different picture than what we’ve seen in the last 94 months,” Dunkelberg said.
The bifurcated data was even more dramatic.
Job creation plans increased from a net 9 percent through Nov. 8 to a net 23 percent after the election. Expected higher sales rose 16 points, from a net 4 percent to a net 20 percent. Expected better business conditions, the biggest mover in the survey, rose from a net negative-6 percent to a net 38 percent, a massive 44-point spike.
“If higher optimism can be sustained, I expect that in the coming months we’ll see an increase in business activity, such as hiring and expanding,” Dunkelberg said.
Whether small businesses remain optimistic and lift the U.S. economy depends on whether the incoming Trump administration and congressional leaders follow through on their plans to reform the tax code, repeal regulations, and fix the broken health insurance system.
“Small business owners are clearly encouraged by the election results, but now it’s time for President-elect Trump and congressional leaders to deliver,” Duggan said. “Federal taxes, regulations, and Obamacare are the three biggest impediments to running a small business in America. Small business owners have high expectations that those problems will be addressed.”
Labor markets
Reported job creation remained weak in November with the seasonally adjusted average employment change per firm posting a gain of 0.02 workers per firm, positive, but barely. Fifty-eight percent reported hiring or trying to hire (up 3 points), but 52 percent reported few or no qualified applicants for the positions they were trying to fill. Sixteen percent of owners cited the difficulty of finding qualified workers as their ‘Single Most Important Business Problem’.
Inventories and sales
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared with the prior three months deteriorated 1 percentto a net negative-8 percent. Reports of stronger consumer spending in the government numbers did not improve reports of sales gains.
Seasonally adjusted, the net percent of owners expecting higher real sales volumes rose 10 points to a net 11 percent of owners, a strong showing, but still historically quite weak.
Capital spending
Fifty-five percent reported capital outlays, down 2 points from October and trending down on a quarterly basis. The percentage of owners making an outlay peaked for this recovery in July 2015 at 61 percent, revisited that percentage in January but has faded since.
The percent of owners planning capital outlays in the next 3 to 6 months fell 3 points to 24 percent. The small business sector remains in “maintenance mode.” However, there was a substantial shift in expectations in the post-election data. Seasonally adjusted, the net percent expecting better business conditions rose 19 percentage points to a net 12 percent. Expectations for economic improvement and sales growth made significant gains, but plans for capital spending did not follow, declining after the election. It will take a “cooling off” period and some additional evidence on the economy to induce owners to convert their optimism into spending.
Earnings and wages
A seasonally adjusted net 21 percent of owners reported raising worker compensation, down 4 points. The net percent planning to increase compensation dropped 4 points to 15 percent. Credit markets
Four percent of owners reported that all their borrowing needs were not satisfied, unchanged from October. Thirty percent reported all credit needs met (up 1 point), and 52 percent explicitly said they did not want a loan, down 1 point. Only 2 percent reported that financing was their top business problem.