Continued Pessimism for Small Businesses

Miles Savitz

Small business sentiment has remained below its long-term average over the past two years due to inflationary pressures and the Fed’s interest rate increases. However, the most recent survey results from the NFIB (an advocacy group for small business owners) showed a slight uptick in their optimism index. While this uptick was minor, most small business owners remain pessimistic about the prospects for 2024.

Many news stories have highlighted that, despite numerous indicators pointing to the economy being in good shape, public sentiment remains pessimistic. This trend is particularly evident among small business owners, whose responses to questions about hard data align with historical averages, in contrast to soft data, which has remained depressed over the past two years. Although expectations did improve in December, with an increase in the number of people expecting the economy to improve, most respondents still do not believe that the economy will see significant improvement.

In December, most small business owners did not observe positive profit trends. However, there was a 7% improvement in their responses compared to November and a 25% improvement compared to June. Additionally, 40% of owners had job openings that they could not fill, and a net 16% of respondents planned to create new jobs in the next three months. These statistics suggest an improving economy, with poor market conditions slowly getting better. However, the persistently high-interest rates have resulted in only 8% of those surveyed being satisfied with their borrowing. Inflation also remains a top concern, with 25% of small business owners stating that it is their largest concern, but that is down from a high of 41%. As pricing power continues to decelerate for these small companies, the high rate of borrowing will become the major issue as it eats into slim profit margins. Unless the Fed cuts interest rates quickly and materially, publicly traded small caps and small & medium-sized private businesses in general will suffer from the high cost of borrowing.

All graphs are from NFIB: Small Business Economic Trends (December 2023)


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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.Indices are unmanaged and investors cannot invest directly in an index.

The National Federation of Independent Business (NFIB) Small Business Optimism Index is a composite of ten seasonally adjusted components. It provides an indication of the healt

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