With a full year of data from the CNBC/SurveyMonkey Small Business Survey now in, it's become clear that on Main Street business owners are increasingly positive in the Trump era. In the second quarter, the broad CNBC/SurveyMonkey Small Business Confidence Index remains near a record-high, and the details show small business owners to be increasing their expectations in two critical areas: revenue and hiring.
Small-business owners are now more apt than they were a year ago to anticipate higher revenue over the next 12 months (60 percent vs. 55 percent a year ago) and to increase their staff (31 percent vs. 27 percent a year ago).
The CNBC/SurveyMonkey Small Business Survey, an online poll with responses from more than 2,000 small-business owners each quarter, now finds that more than half (53 percent) of small-business owners rate their current business conditions positively, the first time a majority has voiced that view. The percentage seeing things as good has been steadily climbing each quarter; the second-quarter 2018 reading is 15 percentage points higher than it was in the second quarter of 2017, when the survey started (38 percent).
While the increases in sentiment on business conditions were gradual and consistent, other components had wilder swings. Revenue expectations saw their largest quarter-to-quarter change from the last quarter of 2017 to the first quarter of 2018, when the proportion of small- business owners expecting an increase in revenue jumped from 53 percent to 60 percent. This change coincided with a significant shift in small-business owners' expectations regarding tax policy — and with the debate and passage of major tax-reform legislation.
President Donald Trump signed the Tax Cuts and Jobs Act into law on December 22, 2017, the largest piece of tax-reform legislation since 2001. The law was framed as a boon for small businesses, many of which file their taxes as pass-through entities and would therefore benefit from the increase in the standard deduction. However, the law's passage required weeks of back-and-forth between the administration and members of Congress as they hammered out key provisions, many of which were unclear until well after the bill was signed into law.
This uncertainty was evident in our quarterly survey. In the final quarter of 2017, 36 percent of small-business owners expected changes in tax policy to have a negative effect on their business (up from 27 percent the previous quarter), and 38 percent expected them to have a positive effect (up from 31 percent). The proportion of small-business owners who said that tax policy would have no effect on their business fell from 40 percent in the third quarter to 25 percent in the fourth quarter of 2017.
By the first quarter of 2018, things had turned around. About a quarter (23 percent) of small-business owners now expect tax policy to have a negative effect on their business, while twice as many, nearly half (46 percent), came to expect tax policy to have a positive effect.
Despite the ups and downs, expectations around tax policy are now back to where they were a year ago, showing how quickly political machinations can yield to facts on the ground for business owners.
Trump's recent announcement of tariffs on steel and aluminum has spurred other countries to declare their own retaliatory tariffs on American agriculture and manufacturing industries, rattling expectations among business owners.
This quarter 28 percent of small-business owners say they expect changes in trade policy to have a negative effect on their business in the next year, the most to say so in five quarters of surveys, and up sharply from 17 percent last quarter. Just 18 percent of small-business owners now anticipate trade policy will have a positive effect on their business in the next year, down from 27 percent in the second quarter of 2017.
If this political conflict can be resolved quickly — much like the tax-reform debate was settled in a matter of weeks — this drag on small-business owners' confidence could prove a mere blip. But if the United States engages in trade wars with real-world consequences, the uncertainty among small-business owners could be a lasting pull.
The year-over-year stability of the overall index score, which was 60 a year ago and stands at 61 now, does not reflect the quarter-to-quarter changes it has cycled through in the past year. After falling to a value of 57 in the third and fourth quarters of 2017, then jumping up to a high of 62 in the first quarter of 2018, the index is indeed nearly back where it started a year ago, but with a great deal of change under the surface.
Much of the substantial variation among the index components is masked in the overall index calculation, as quarter-to-quarter changes for individual items often cancel each other out. For example, the increase in trade policy concerns this quarter were offset by the boosted expectations for revenue, hiring and, above all, "good" conditions reported by small-business owners.
That is the advantage of a regular index: It summarizes several key components into an overall picture of confidence among small-business owners, while also allowing the observation of much more granular details.
Of the eight key index components included in our score, just one has held steady every quarter of the last year. A year ago 42 percent of small-business owners expected changes in technological innovation to have a positive effect on their business — and since that time, that number has not budged. Through the course of this year, the index components that have undergone the largest shifts in sentiment are those that have been tied to political upheaval.
— By Laura Wronski, research scientist, and Jon Cohen, chief research officer at SurveyMonkey. The CNBC/SurveyMonkey Small Business Survey is conducted quarterly using SurveyMonkey's online platform and based on its survey methodology.