Small Business Optimism Surges Following Electoral Victory
In the chilly November of 2024, NFIB's Small Business Optimism Index took a significant leap, climbing from 96.3 to an impressive 104.7. This unadjusted surge was an 8.4-point increase, painting a hopeful picture for small businesses. The questionnaires were dispatched on Halloween, suggesting that some early November respondents might not have been privy to the election results. Yet, the overall Index bounced back in a remarkable fashion, regardless.
All industries witnessed growth, albeit to varying degrees. The wholesale and finance sectors experienced only a slight surge in optimism, with elections likely influencing their sentiment towards Fed policy. On the other hand, professional services and the production sector (including construction, manufacturing, and transportation) gained substantial benefit from the election results, showing a 14.7 and 10-point increase accordingly.
This dramatic boost in optimism led to a tripling of the percentage of companies viewing the "current period" as an opportune time to expand, reaching 12%. Incredibly, the construction industry, wholesale trades, professional services, and finance and real estate sectors spearheaded this trend. The regulatory landscape, including cost of materials and labor, as well as buildable land availability, play a significant role in the mindset of builders. They seem to anticipate these challenges and restrictions easing under the new administration, alongside the possibility of declining mortgage rates with improved government spending management.
Small businesses commence the New Year of 2025 with renewed vigor, powered by this optimistic energy. Although reconstruction needs will dominate in hit-hard areas like California, Florida, and North Carolina, these endeavors are essentially replacing lost assets rather than adding to our capital stock. Nonetheless, small business owners are renowned for surmounting adversity and propelling the economy forward.
Consequently, small business optimism hit an unprecedented high, reaching 101.7 in November 2024, its highest level since June 2021[1][4]. The driving forces behind this spike were robust economic outlook, reduced inflation concerns, pro-business policy expectations, heightened expansion plans, and decreased uncertainty[1][2][3][4]. Small business owners expressed an upbeat view of the economy improving, with 52% expecting significant growth in Q4 1983-like fashion[1][4]. Additionally, inflation, although still an issue, appeared to be less of a deterrent for small businesses and was met with optimism for improved conditions in the coming year[1][2]. With a collective sigh of relief, the NFIB Small Business Uncertainty Index plummeted to 86 in December 2024, marking the lowest level since June 2024[1]. Total optimism surpassed analysts' predictions, reaching 101.3, highlighting not just a resilient but also an incredibly hopeful and ambitious small business sector[2].
The surge in small business optimism, as indicated by the NFIB Index, could potentially stimulate economic growth within the sector. This optimism, evidenced by a tripling of companies viewing the current period as an expansion opportunity, could lead to increased investment in small businesses.
The improvement in small business optimism, coupled with expectations of pro-business policies and reduced uncertainty, could boost the economy, inspiring confidence among small business owners and contributing to economic growth.
