from the National Federation of Independent Business

The Index of Small Business Optimism gained 3.7 points to 107.5 in November, the second highest reading in the 44-year history of the NFIB surveys (108.0 in July 1983).

[editor’s note: Market expectation from Bloomberg/Econoday was between 104.0 to 105.9 (consensus 104.2) versus the actual reading of 107.5].

Said NFIB President and CEO Juanita Duggan:

We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research. Small business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.

Eight of the 10 Index components posted a gain and two declined, as Job Openings fell from its record high level and Capital Spending Plans declined 1 point. Eighty percent of the gain in the Index was accounted for by expectations about future business conditions and real sales gains, and the environment for business expansion.

Said NFIB Chief Economist Bill Dunkelberg:

This is the second-highest reading in the 44-year history of the Index. The NFIB indicators clearly anticipate further upticks in economic growth, perhaps pushing up toward four percent GDP growth for the fourth quarter. This is a dramatically different picture than owners presented during the weak 2009-16 recovery.

The change in the management team in Washington has dramatically improved expectations,” he continued.

Job Creation plans increased six points last month, providing more evidence of a strong labor market. The number of owners who said it’s a Good Time to Expand rose four points; Inventory Plans increased by three points; Inventory Satisfaction increased by three points; and Actual Earnings Trend moved up two points.

Job creation faded, but hiring plans soared, primarily in construction, manufacturing, and professional services.

Report Commentary:

President Trump promised that we would get tired of “winning” in his term, a logical perspective because the Republicans have majorities in both houses of Congress and the Presidency. There has been an important success on relief and in restructuring the judiciary, and they are now close to enacting tax reform as the year winds down.

The Federal Open Market Committee (FOMC) which conducts monetary policy is undergoing a major facelift. Although the appointment of Powell is viewed as replacing Yellen with “Yellen”, that is not the case. Mr. Powell has extensive financial market experience, something few FOMC members possess, which will help guide policy decisions. The Federal Reserve charter calls for governors that represent the business sector, but such appointments are rare, dominated instead by academic economists. Two other new appointees are less philosophically disposed to the notion of government running the economy (rather than markets). More positions will open in the near future and these will be filled with governors who place a different emphasis on the goal of creating inflation, an anathema to most small-business owners. The Federal Reserve will boost rates again in December, but that will leave the Federal Funds rate at about half of the level that history would suggest. The Federal Reserve is still in control of rates and bond investors bet on the Fed, not markets.