While the year started well with a good jobs report, the outlook is uncertain at best and, according to small business owners' optimism, unlikely. Although consumer sentiment increased by 10 points in January, it remains well below levels reached before 2020 (University of Michigan). Small business sentiment remains very low, about 7 points below the 50-year average since 2020 and 22 points below the record high in 2018. Last year's readings are similar to those from the 2008-2009 recession period (Graph 1). ). If the forecasters are right, the economy will be set for a downward trend – unless we truly experience a soft landing. However, if it is a Trump-Biden election and Trump prevails, a repeat of 2016-18 could inspire optimism and a more business-friendly government. If Biden prevails, historic low optimism for small business owners could continue.
Small Business Optimism Index, survey of economic trends for small businesses
NFIB
Therefore, short-term improvements are unlikely as the January reading of the Small Business Optimism Index fell to 89.9, the lowest reading since May 2023 (89.5). Small business owners' assessment of future business conditions is among the worst in 50 years (Figure 2). The supposedly strong economy in the second half of 2023 did not indicate an improving business environment and did not motivate capital spending or investing in inventory to meet still-strong consumer spending (according to government statistics, but little evidence of stronger sales on Main Street). .
Outlook on the general business situation, survey on economic trends for small businesses
NFIB
Figure 3 shows a number of statistics from the January survey, including an optimism index based on the ten variables used to calculate the official NFIB optimism index, but not seasonally adjusted or tied to a base period. The most optimistic in January were companies in construction and non-professional services, which are currently experiencing stronger consumer spending, as well as companies in wholesale trade. The average index for companies operating in these industries was 100 or better. Close behind were companies in the manufacturing sector with an average index of 98. The lowest values (93) were in the transport and agriculture sectors. When asked about business conditions in six months, 41% expected them to be worse than the current period. Owners in the agriculture, financial services and real estate sectors were the most pessimistic, with more than half expecting a deterioration. Companies in the construction, wholesale and service sectors were the least pessimistic: 36% expected worse conditions.
Small Business Economic Trends Survey, January 2024 data
NFIB
By far the most important issue (SMIP) reported by small business owners is the quality of labor (21%), with inflation close behind at 20%. Most owners (89%) attempting to hire new employees complain of “few or no qualified applicants,” an unfavorable environment for owners looking to grow and improve their workforce. Fifteen percent have vacancies for unskilled workers and cannot even fill them. There are many job openings, but even in this environment of solid wage growth in the economy (which is actually being offset by rising prices for goods and services), there are not enough willing workers to fill them.
Overall, 2024 will be dominated by uncertainties, the election, current government policies, Ukraine, Taiwan, inflation and debt issues, to name a few. Some of these issues could be solved by the election as it becomes clearer what policies companies will have to live with over the next four years. Most problems will last until 2025 and beyond. Inflation will remain stubborn unless there is a real recession that causes companies to cut prices (15% reported price cuts in January, the highest since August 2020). Goods prices fall slightly, but services prices do not, and that accounts for two-thirds of consumer spending and is labor intensive (39% said they increased workers' compensation in January). There are a lot of moving parts, but uncertainty will likely ease as the election approaches.
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