Small business owners remain very pessimistic about this year’s economic outlook and were unaware of the rapid economic growth in the third quarter of last year that the government announced. After Trump won the 2016 election, small business optimism rose to the highest level in 50 years. NFIB’s Small Business Optimism Index rose from 98 in November 2016 to 106 in December, and remained well above 100 until it plummeted to 96 in March 2020 due to coronavirus shutdowns. The November election is likely to again have a big impact on optimism, spending and growth. The 2023 index average was 91, while the 50-year average was 98 (yes, it took him 50 years to collect information from a random sample of about 300,000 member companies! ). Meanwhile, governments are aggressively enforcing new regulations and finding ways to channel more money into priority projects. The administration seems content to borrow all the money it needs and leave the issues of repayment and interest payments to future taxpayers and the public. Economic growth will slow and the debt burden on the private economy will worsen.
NFIB’s Small Business Optimism Index ended 2023 at its original 91, leading to an economy in 2024 where economic growth is expected to worsen. Only 10% of respondents expect business conditions to improve by the middle of this year, while 44% expect them to worsen. Only 21% expect actual sales volume to increase, while twice as many expect it to decrease. 6% think it’s a good time to expand their business, while 61% think it’s not. As can be seen in Exhibit 1, this is not a prospect that will contribute to economic growth. The current reading of the index is as bad as it was in 2008 and has been in recession territory since June 2022 (when other recessionary indicators such as leading economic indicators and economic leading indicators come into play). The yield curve has started to turn red).
There are only 9 months left until the election, which will take a long time politically, but it is likely that the recession and recovery caused by the suspension of economic activity due to the novel coronavirus infection in 2020, or the one-off and extraordinary surprise in the third quarter of 2023. Economically, this is not the case, as 5% growth shows. Much can and will happen as the election approaches, as happened in 2016. While traditional recession indicators continue to suggest declines, the past year has seen no signs of a slowdown or even a recession. The government says consumers still have plenty of purchasing power. Other indicators show that debt levels are very high, delinquencies are rising (including for student loans), and credit is tightening. Consumers support economic growth and account for two-thirds of GDP, so their actions will drive the economy in 2024. The December Consumer Sentiment Index (University of Michigan) was 69, slightly below the 2023 high of 71 but above 25. That’s many percentage points below 2019 levels. They are not “optimistic”, so a lot depends on whether consumers are truly “deep” in cash and, if so, whether they are willing to spend. Small business owners will no doubt take note and adjust in some way.
