Despite the overall economy continually outperforming expectations for the past couple of years, small businesses have mostly been in a dour mood. Indeed, the monthly Small Business Optimism Index survey from the National Federation of Independent Business (NFIB) wallowed in the low 90s from early 2022 through October of this year, well below the longer-term average of 98 (dashed line on chart). The combined effects of the highest inflation in decades and subsequent rapid interest rate hikes weighed heavily on small businesses.
However, the results of the November survey released this morning show a renewed sense of excitement about the potential for a more business-friendly environment following the election. The NFIB survey surged by a record 8 points in November to 101.7. The details underscored the dramatic improvement, with 9 out of 10 subcomponents also rising led by expectations for the economy to improve, which soared by 41 points. Clearly, small business owners have suddenly turned a lot more optimistic about the prospect for some of the key proposals of the incoming administration to spur an increase in activity, including less regulation and additional tax cuts.
Of course, there’s a lot that we still don’t know in terms of the specifics of various proposals, what will be prioritized next year, etc. But an increase in economic activity amongst small businesses could certainly help to extend the current economic cycle well into next year, and perhaps beyond.
Source: Koyfin, National Federation of Independent Business, as of 12/10/24
Source: National Federation of Independent Business, as of 12/10/24
Carl Noble, CFA
Senior Vice President of Investments
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