US Small Business Optimism Hits 3-Year High As Election Results 'Signal A Major Shift'

Small businesses across the U.S. are heading into the holiday season with newfound confidence and momentum.

The Small Business Optimism Index surged to 101.7 in November 2024, marking a a significant rebound from October's 93.7, as reported by the National Federation of Independent Business (NFIB) on Friday.

This data not only marks the highest level since June 2021 but also breaks a 34-month streak by rising above its 50-year average of 98.

The catalyst? Confidence in post-election economic policies and hopes for reduced inflationary pressures.

Optimism Breakdown: What's Fueling The Surge?

"The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners," said NFIB chief economist Bill Dunkelberg.

The biggest driver of the optimism surge was the net percent of owners expecting economic improvement, which jumped 41 points from October to reach 36%, the highest reading in over four years.

"Main Street also became more certain about future business conditions following the election, breaking a nearly three-year streak of record high uncertainty," Dunkelberg added.

Optimism seems to be back on the menu for America's small business owners, driven by several encouraging trends:

• The percentage of business owners believing it's a good time to expand rose 8 points to a net 14%, the best reading since June 2021.
• Expectations for higher real sales volumes climbed 18 points to a net 14% seasonally adjusted, marking the highest level since February 2020.
• A net 5% of owners 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 past six months, 54% spent on equipment, 22% purchased vehicles, and 14% improved or expanded facilities.
• Profitability is also showing signs of life. Reports of positive profit trends improved by 7 points to a net negative 26%, the least negative reading of 2024.
• 53% of businesses reporting higher profits credited stronger sales volumes, while 13% of them highlighted higher selling prices.

Main Street's Remaining Challenges: Labor And Inflation

Despite rising optimism, small business owners still face hurdles.

Labor quality and inflation remain the most significant issues, with 19% of respondents citing labor as their top concern and 20% pointing to inflation, although the latter eased slightly from October's reading.

The tight labor market persists, with 36% of owners reporting job openings they couldn't fill in November, up one point from the previous month. Among those trying to hire, 87% said they found few or no qualified applicants.

Compensation pressures reflect this trend, with a net 32% of owners raising wages last month and 28% planning additional increases in the next quarter.

On the inflation front, 24% of owners raised average selling prices in November, up three points from October. Notably, price hikes were most frequent in the wholesale sector at 50%, followed by finance at 46% and retail at 43%.

Credit access has tightened slightly, with 7% of owners saying their last loan was harder to obtain than previous attempts, up from October's reading. Still, only 5% of respondents listed financing as their top business issue.

Market Reactions

The upbeat NFIB Small Business Optimism Index had little effect on the Russell 2000's price movement on Tuesday.

The iShares Russell 2000 ETF IWM slipped 0.5% as of 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. UNFI, and Nerdy Inc. NRDY, which surged 34.6%, 26.3%, and 18%, respectively.

Conversely, major laggards included CervoMed Inc. CRVO, down a staggering 76%, Canoo Inc. GOEV, tumbling 40%, and Scilex Holding Company SCLX, dropping 13.8%.

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