Optimism on Main Street continues to soar in the wake of the election of Donald Trump. The National Federation of Independent Business’ read on small-business sentiment for December hit its highest level since 2004, thanks to a sunnier outlook for business conditions.
The NFIB’s index increased by 7.4 points in December to 105.8, up from November’s 98.4. It’s the largest month-over-month index change since it began in 1986.
That’s thanks to business owners’ expectations that business conditions will get better. In fact, members’ perceptions that business conditions will improve accounted for 48 percent of the month’s increase. The index’s historical average reading is 98.
Sales expectations also increased by 20 percentage points, as did the percentage of owners who believe now is a good time to expand, which is up 12 points.
The NFIB polled more than 600 small businesses for the report.
“Optimistic consumers and business owners are more likely to bet (spend and hire) on a future that seems to hold promise,” Bill Dunkelberg, the conservative lobbying group’s chief economist, wrote in this month’s report. “But to maintain the enthusiasm, reality will play a supporting role.”
Main Street is certainly gearing up for what is perceived to be an era of deregulation and more business-friendly policies under a Trump administration. The biggest issues for small companies in this month’s index were taxes, followed by government regulations and red tape, so the belief that these issues may be lessened is sending a hopeful message.
“There’s a shift in emphasis in terms of what small businesses have faced over the last eight years in terms of taxes and regulations, with Republicans holding control of the House and Senate, and Trump winning,” said Raymond Keating, chief economist for the nonpartisan Small Business and Entrepreneurship Council. “Small businesses are zeroed in on tax and regulatory reform.”
Separate data from Staples last week underscored the positive post-election feeling among small employers, with 85 percent saying they are optimistic about the climate in the new year, 67 percent planning to hire and 72 percent planning on increasing staff wages in 2017.
Small-business borrowing also increased in November, according to Thomson Reuters/PayNet, with the lending index increasing for the first time in six months after Trump was elected.
More work to be done on Main Street
Despite the surge in optimism, hiring is flat. For December, the NFIB reported job creation as an increase of only 0.01 workers per firm, while job openings fell two points. In addition, sales improved by just one percentage point, despite consumer confidence soaring in December to its highest levels since 2001.
On CNBC’s “Squawk Box” on Tuesday, former U.S. Treasury Secretary Lawrence Summers referred to the slew of positive economic data post-election and the market rally as a “sugar high” that he expects to “last for awhile.”
If job creation and sales numbers climb, small-business optimism could continue to hold strong, Keating said, adding that action from the Trump administration on key areas, including tax and regulatory reform, will also have a positive impact.
“We are expecting good things to happen,” Keating said. “But when will they happen, and when will these policies get implemented?”
Correction: The NFIB’s small-business optimism index increased to 105.8 in December. An earlier version misstated the figure.