On average, 2017 record year for small business optimism

Juanita Duggan
Juanita Duggan

A monthly measure of confidence among small business owners has retreated on less upbeat expectations for improving economic conditions, sales and hiring.

Nonetheless, 2017 was on average the strongest ever in the 45-year history of the Small Business Optimism Index, a performance that bodes well for 2018.

““With a massive tax cut … accompanied by significant regulatory relief, we expect very strong growth, millions more jobs and higher pay for Americans,” said Juanita Duggan, president and chief executive officer of the National Federation of Independent Business.

Bill Dunkelberg, chief economist of the NFIB, said the results of the presidential election and policies

William Dunkelberg
William Dunkelberg

that have followed have buoyed small business optimism. “We’ve been doing this research for nearly half a century, longer than anyone else, and I’ve never seen anything like 2017,” Dunkelberg said. “The 2016 election was like a dam breaking. Small business owners were waiting for better policies from Washington, suddenly they got them and the engine of the economy roared back to life.”

The NFIB reported its Small Business Optimism Index fell  to 104.9 in December. That’s 2.6 points lower than November, when the index stood at its second-highest point and only slightly below the peak of 108 set in July 1983.

The average monthly index reading for 2017 was 104.8. The previous record was 104.6 set in 2004.

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group, most of them small business owners. For December, five of 10 components of the index retreated, while two advanced and three remained unchanged.

A net 37 percent of those who responded to the survey upon which the December index was based said they expect the economy to improve, down 11 points from November.

The share of those who said they consider now a good time to expand held steady at a net 27 percent. The same proportion said they plan to increase capital spending over the next three to six months, up a point.

A net 28 percent of owners said they expect increased sales, down six points. At a net negative 15 percent, more owners reported lower earnings than higher earnings. That reading was down five points.

A net 20 percent of owners said they plan to increase staffing, down four points. A net 31 percent of owners reported hard-to-fill job openings, up a point. “They are raising compensation for workers in order to attract and keep good employees, but that’s a positive indicator for the overall economy,” Dunkelberg said.

At net negative 1 percent, more owners reported plans to decrease inventories than increase them. That reading was down eight points. At a net negative 2 percent, more owners said current inventories were too high than too low. That reading was unchanged.

Duggan said the average increase in optimism among small business owners during 2017 showed better policies make for better economic results. “The evidence is overwhelming that small business owners pay close attention to Washington and that federal policies affect their decisions on whether to hire, whether to invest, whether to grow inventory and whether to seek capital.”