INSIGHTS BLOG

SMALL BUSINESS CONFIDENCE IN THE US RIDING HIGH

Mark Lister, 13 June 2018

There’s a lot of bad news stories around at the moment. Trade tariffs, political risk, high debt levels, rising interest rates – the list goes on. However, there’s one particularly positive business story, and that’s the clear evidence the world’s biggest economy is going gangbusters at the moment.

We know corporate America is doing pretty well. That’s reflected in the fact annual earnings growth for the S&P 500 was up 24.6 per cent in March, the strongest since 2011. Share prices didn’t keep up with that trend, with the index rising by only half of that.

Ironically, US shares are actually a bit cheaper than they were a year ago, even though the market has gained about 12 per cent.

Anyway, that’s the big end of town, but it’s what’s happening at the other end of the spectrum that has got me so upbeat about the US economy.

Like New Zealand, the US is a nation of small businesses. There are some 30 million of them and almost half of all private sector employees work for a small business. They punch above their weight in terms of new job creation as well, accounting for nearly two thirds of the new jobs created since 2010.

It’s because of this that I always read the survey of small business trends from the National Federation of Independent Business (NFIB). The NFIB asks thousands of its members about a range of issues each month, and has been doing so since 1973.

The results provide timely feedback about what’s happening on the ground in America in terms of sentiment, employment trends and inflation. Small businesses tend to be more domestically focussed, which means their confidence levels reflect what is happening within the US economy more accurately than larger companies.

This month, the results made for very positive reading.

The headline measure of small business optimism rose to 107.8, above the long-term average of 98.1 for the 19th consecutive month. That’s the second highest reading in the 45-year history of the survey, second only to a marginally higher 108.0 from September 1983.

Just consider that for a moment. Small businesses in the US are the most optimistic they’ve been since 1983, some 35 years ago.

Reports of positive earnings trends hit an all-time high, with small businesses citing the recent tax cuts and falling regulatory costs are positives. That will filter through to further investment in growth, with views from firms about expansion also the most optimistic in the history of the survey.

Workers seem to getting more of their share as well, with compensation increases hitting a 45-year high. A record number of firms are finding it difficult to source workers, and 83 per cent reporting very few qualified applicants to open positions.

The tight labour market is clearly having an impact on costs and inflation, with plans to raise prices sitting at the highest levels since 2008.

The US economy isn’t without risks and uncertainties. However, fundamentals are looking very solid and these should drive further growth, investment and employment.

While it might be big business that dictates what happens on Wall Street, small businesses dominate Main Street and at the moment, Main Street America is on fire.

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