Here's why Main Street's good mood may have staying power

Executive Edge: Small biz optimism

Small business optimism continues to climb post-election, with slight increases in the number of companies planning to create jobs and hire, according to the latest data from the National Federation of Independent Business, a conservative lobbying group. The numbers still look good for Main Street, although it would help to have more clarity from the new administration on its policies.

The NFIB's monthly read on sentiment for January was 105.9, an increase of .1 points from the report at the end of 2016 and 7.9 points higher than the average of 98. That's a high not seen since December of 2004. This month's data also follows the largest month-over-month increase in the survey's history of 7.4 points to 105.8.

Overall, five of the index components increased and five decreased, although many held near their record highs.

Job openings and job creation plans both showed movement, which NFIB Chief Economist Bill Dunkelberg says could signal higher GDP growth in the year to come. He adds that the growth in optimism appears similar to a surge in positive sentiment seen in 1983, which was followed by years of economic growth.

"Congress now has the opportunity to undo harmful, anti-growth policies. For small-business owners, the success or failure to produce positive results will be reflected in future reports measuring small business optimism and their hiring and spending activity," Dunkelberg writes in the report.

President Donald Trump hosts a meeting with business leaders in the Roosevelt Room of the White House in Washington January 23, 2017.
Kevin Lamarque | Reuters

The three biggest issues for small companies remain taxes, government regulations and red tape, and a lack of skilled labor. While companies are open to hiring and creating new positions, the issue of finding workers with the right skill-sets to fill those positions remains a challenge for 15 percent of small companies surveyed.

Plans to make capital outlays fell two points this month but remain near record-highs. Those expecting better business conditions also fell two points but remain "exceptionally optimistic," according to the report.

The NFIB also notes that while consumer optimism skyrocketed after the election, that has not yet translated into higher sales. As a result, "expectations at a very positive level, but not yet confirmed by actual improvements in sales trends."

Small business owners are looking for changes.
Ray Keating
chief economist, SBEC

In other words, the numbers are positive, though they have yet to translate into meaningful consumer spending, which could signal further hiring and investment on Main Street. More detail and direction from the Trump Administration on tax reform and promised changes to regulations like the Affordable Care Act could provide much-needed clarity.

"Small-business owners are looking for changes to happen," said Ray Keating, chief economist at the nonpartisan Small Business & Entrepreneurship Council. "We hear this will happen on the regulatory and tax front, which is a good foundation for the economy. But the question will be on carry-through."

Of course, those changes to policy and regulation leave room for unintended consequences.

"I think people are very aware they could face huge confusion like they did when the Affordable Care Act was passed," said Molly Day, vice president of Public Affairs for the nonpartisan advocacy group the National Small Business Association. "But with the administration focusing on tax reform and regulatory burden, there is significant growth in terms of the overall economic outlook."

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