Small business optimism jumps as owners look forward to tax cut impact

Small Business Optimism climbed in January in a sign that the nation’s small businesses are focused on economic growth. ( Photo: Shutterstock )

The Index for Small Business Optimism jumped two points to 106.9 in January, reports the National Federation of Independent Businesses (NFIB). This serves as an encouraging sign that the nation’s small and independent businesses have shrugged of some of the recent political turmoil in Washington and are looking forward to the expected boost in economic activity from the recent Tax Cuts and Jobs Act.

This month’s reading continues a general trend of elevated sentiment that began following the presidential election of 2016. The promise of reduced regulations and a stronger economy helped keep optimism high throughout 2017, and calls for stronger growth in 2018 have helped push the index to near-record levels.

A look at the details of this report provides even more encouragement about the state of small businesses. The net percentage of firms reporting higher actual earnings surged to the highest level in nearly 30 years in January. In addition, the percentage of businesses saying that now is a good time to expand reached a new record high, reflecting the enthusiasm for growth prospects in the economy.

“Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses,” said Juanita Duggan, NFIB president and CEO

“The historically high index readings over the last year tell us small business owners have never been more positive about the economy. This is in large response to the new management in Washington tackling the biggest concerns of small business owners – high taxes and regulations,” said Bill Dunkelberg, NFIB chief economist.

Behind the Numbers:

The rise in small business conditions was one of the more underappreciated trends in 2017. During the recovery from the Great Recession, much of the growth was driven by large multinational corporations while small and independent businesses largely struggled. While a good deal of the rise in optimism over the past year and a quarter has been forward looking and not necessarily reflective of current conditions, the January report shows some signs that business activity and earnings are picking up momentum in the economy. If this trend continues, it would lead to a more robust expansion compared to the past few years.

Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.