Wall Street Should Be Listening To Small Business Owners For Guidance On Growth

by Bryan Rich

December 12, 4:00 pm EST

This morning we got a report that small business optimism hit the second highest level in the 44-year history of the index.

Here’s a look at that history …

optimism

Remember, last year, following the election, this index that measures the outlook from the small business community had the biggest jump since 1980 (as you can see in the chart).

Why were they so excited?  For most of them, they had dealt with a decade long crisis in their business, where they had credit lines pulled, demand for their products and services were crushed, healthcare costs were up and their workforce had been slashed. If they survived that storm and were still around, any sign that there could be a radical change coming in the environment was a good sign.

A year ago, with a new administration coming in, half of the small business owners surveyed, expected the economy to improve. That was the largest agreement of that view in 15 years.

They’ve been right.

Now with an economy that will do close to 3% growth this year, still, about half of small business owners expect the economy to improve further from here.

No surprise, they are more than pleased with the tax cuts coming down the pike.  They’ve seen regulatory relief over the past year.  And, according the chief economist for the National Federation of Independent Businesses, small business owners see the incoming Fed Chair (Powell) as more favorable toward business (and market determined decisions) than Yellen.  And he says, “as long as Congress and the President follow through on tax reform, 2018 is shaping up to be a great year for small business, workers, and the economy.”

This reflects the theme we’ve talked about all year: the importance of fiscal stimulus to bridge the gap between the weak economic recovery that the Fed has manufactured, and a robust sustainable economic recovery necessary to escape the crisis era.  This small business survey tends to correlate highly with consumer confidence.  Consumer confidence drives consumption. And consumption contributes about two-thirds of GDP.  So, by restoring confidence, the stimulative policy actions (and the anticipation of them) has been self-reinforcing.

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