Small businesses in the US are heading into the holiday season with new confidence and drive.
The Small Business Optimism Index rose to 101.7 in November 2024, a significant rebound from 93.7 in October, the National Federation of Independent Business (NFIB) reported on Friday.
This data not only marks the highest level since June 2021, but also breaks a 34-month streak by surpassing its 50-year average of 98.
The catalyst? Confidence in post-election economic policies and hopes that inflationary pressures will reduce.
Optimism Breakdown: What’s Driving the Rise?
“The election results signal a major shift in economic policy, leading to increased optimism among small business owners,” said the NFIB chief economist. Bill Dunkelberg.
The biggest driver of the rise in optimism was the net percentage of homeowners expecting an economic improvement, which jumped 41 points from October to reach 36%, the highest reading in more than four years.
“Main Street also became more certain about future business conditions after the election, breaking a nearly three-year streak of record uncertainty,” Dunkelberg added.
Optimism appears to be back on the menu for American small business owners, driven by several encouraging trends:
- The percentage of business owners who believe it is a good time to expand increased 8 points to a net 14%, the best reading since June 2021.
- Expectations for higher actual sales volumes rose 18 points to a seasonally adjusted net 14%, marking the highest level since February 2020.
- A net 5% of homeowners reported paying higher interest rates on recent loans, unchanged from October’s lowest level since January 2022.
- 28% of small businesses plan capital investments in the next six months, up 6 points from October and the strongest reading since January 2022.
- Of those who invested in the last six months, 54% spent on equipment, 22% purchased vehicles and 14% improved or expanded facilities.
- Profitability also shows signs of life. Reports of positive earnings trends improved by 7 points to a net negative 26%, the least negative reading of 2024.
- 53% of companies that reported higher profits attributed higher sales volumes, while 13% of them highlighted higher sales prices.
Main Street’s Remaining Challenges: Jobs and Inflation
Despite growing optimism, small business owners still face obstacles.
Job quality and inflation remain the biggest issues, with 19% of respondents citing jobs as their top concern and 20% pointing to inflation, although the latter was down slightly from October’s reading.
The tight labor market persists, with 36% of owners reporting vacant positions they were unable to fill in November, up one point from the previous month. Among those who tried to hire, 87% said they found few or no qualified applicants.
Wage pressures reflect this trend: a net 32% of owners increased wages last month and 28% plan additional increases in the next quarter.
Regarding inflation, 24% of owners increased average sales prices in November, three points more than in October. In particular, price increases were most frequent in the wholesale sector at 50%, followed by the financial sector at 46% and retail trade at 43%.
Access to credit has been slightly restricted: 7% of homeowners say their last loan was more difficult to obtain than previous attempts, up from October. Still, only 5% of respondents cited financing as their top business issue.
Market reactions
The upbeat NFIB Small Business Optimism Index had little effect on the price movement of the Russell 2000 on Tuesday.
He iShares Russell 2000 ETF IWM fell 0.5% at 10:00 a.m. in New York, mirroring Monday’s decline.
On the performance front, the Russell 2000’s biggest winners included Cardiff Oncology, Inc. CRDF, United Natural Foods, Inc. UNFIand Nerd Inc. NRDYwhich increased by 34.6%, 26.3% and 18%, respectively.
On the contrary, among the main laggards are CervoMed Inc. CRVOa staggering 76% decline, Canoo Inc. GOEVfalling 40%, and Scilex holding company SCLXfalling 13.8%.
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