Small business owner optimism continues to hold steady despite concerning and growing global economic negative indicators. However, the delay in turmoil is likely linked to delayed trade tariffs and short-term interest rate cuts.
Two surveys revealed the uptick in October. The NFIB Optimism Index increased 60 bps (basis points) in October. Furthermore, the Wells Fargo/Gallup Small Business Index showed a six-point increase in overall optimism.
The NFIB Index showed eight of the 10 Index components advancing. The Uncertainty Index declined 4 points but remains historically high heading into an election year. The October increase was led by GDP-producing plans for job creation, inventory investment, and capital spending. Reports of actual capital spending increased and inventory investment improved from a modest negative level in September. Reports of rising labor compensation increased and remained strong historically, and the frequency of plans to raise compensation also rose in October.
The Wells Fargo Index indicates optimism from business owners about their present and future financial situations saw slight increases, with scores of 67 and 75 respectively. More than 80% of owners said their current financial situation was somewhat or very good, while 85% said the same would be the case 12 months from now. When asked about the current state of the U.S. economy, 63% rated it as either good or excellent (representing a 7-point decrease from last quarter), and 56% agreed that the economy was on the right track for business growth over the next 12 months. One indicator tempering this optimism is that a third of business owners (33%) said an economic downturn is either “very” or “extremely” likely in the next 12 months, though two-thirds said they are somewhat or very prepared for such an occurrence.
Business Optimism Analysis
““Labor shortages are impacting investment adversely – a new truck, or tractor, or crane is of no value if operators cannot be hired to operate them,” said NFIB Chief Economist William Dunkelberg. “The economy will likely remain steady at its current level of activity for the next 12 months as Congress will be focused on other matters, and an election cycle will limit action. Any significant change in trade issues will impact financial markets more than the real economy during this period. Adjustments to a new set of ‘prices,’ such as tariffs, will take time.”
Meanwhile, the Wells Fargo survey delved into owner sentiment concerning the upcoming 2020 elections. When asked what impact the winner of the presidential election would have on their business, more than half (51%) described it as major, 37% said minor, and 12% said not much at all. When asked if candidates in the 2020 presidential election were discussing issues most important to them, more than two-thirds (69%) said they were not. When asked to identify issues they most wanted to candidates to address, business owners highlighted taxes (21%), healthcare (11%) and the economy (10%) as their top priorities. Other national issues such as immigration (4%), climate change (3%) and national security (2%) were less highly emphasized.
It is unlikely the economy will dismantle before the end of 2020 or after the Presidential election, barring an unexpected economic event such as government shutdown notes Robert McKinley, Senior Analyst for CardTrak.
U.S. Investor Confidence
U.S. investor optimism increased a smidge in the latest Wells Fargo/Gallup Investor Optimism Index, following a dip in the previous quarterly survey as investors faced mixed economic signals. The index score is now 84, up from 72 in the third quarter survey and on par with 85 in the second quarter survey.
Gallup conducted the poll Oct. 7–13 as the stock market was making modest gains. The survey also followed the federal government’s monthly jobs report announcing that hiring had cooled in September amidst the ongoing trade war, but that the unemployment rate had dipped to 3.5%, a 50-year low.
“With a mix of encouraging and discouraging economic news, investors chose to focus on the positive, lifting their confidence in the economy as well as their own financial outlook,” said Adam Taback, deputy chief investment officer for Wells Fargo Private Bank.