Small-business optimism in America surged in its largest increase since 1980 in December as firms reported improved expectations for the economy in the aftermath of the election.
The National Federation of Independent Business Index of Small Business Optimism jumped by 7.4 points to 105.8, its highest level since 2004.
The prior month saw the index rise by 3.5 points, while October saw an uptick of 0.8.
The bulk of the increase came from a huge shift in firms’ expectations for sales and the economy going forward. In fact, a net 50% of firms said in December that they expected the economy to improve, up from 12% in November and a net 7% with a negative outlook in October.
The huge surge in optimism follows the US presidential election. Several analysts argued that the postelection enthusiasm at least partially contributed to the jump.
“Most of this improvement appears to have reflected the election although there is some basis for it in earnings: On net, fewer small firms were reporting declining earnings – 14% in December versus 20% in November and similar shares for most of the last several years,” Samuel D. Coffin, the economist at UBS, wrote.
This optimism, however, has yet to translate into significant spending. “Planned capex has shown little move yet,” Coffin added. “Job openings slipped slightly. The share of firms raising prices or worker comp was little changed – although plans to hike prices and wages turned up. The workers per firm measure was unchanged in Dec – extending its recent zero net hiring trend.”
“Small business sentiment has become great again,” Renaissance Macro’s Neil Dutta wrote in an email after the report. “But here is an interesting nugget, this index ran higher in the early to mid-2000s than it did in the late 1990s. What era does the average American think more fondly of with respect to their own personal finances?”
In any case, the bottom line is that small-business owners in America are suddenly feeling much more optimistic about the economic outlook.
“We haven’t seen numbers like this in a long time,” Juanita Duggan, the NFIB’s president and CEO, said.