Key Points

  • Small business owner optimism surged to its highest level in more than three years last month, driven by expectations that President-elect Donald Trump will push pro-growth regulatory and tax policies, the National Federation of Independent Business (NFIB) said on Tuesday.
  • The share of small business owners expecting the economy to improve rose to its highest level since June 2020, while those viewing it as a good time to invest reached their highest reading since June 2021, the NFIB said in describing its monthly survey results.
  • "The election results signal a major shift in economic policy, leading to a surge in small business owner optimism," NFIB Chief Economist Bill Dunkelberg said in a statement. "Owners are particularly hopeful for tax and regulatory policies that favor strong economic growth, as well as measures to ease inflationary pressures," he noted. "Small business owners are eager to expand their operations."

Deeper Dive

Trump's victory in last month's election coincided with signs of economic vitality and optimism, including above-trend growth, solid consumer spending, and record stock prices.

Gross domestic product (GDP) — despite forecasts of a slowdown earlier this year — grew at an annualized rate of 1.4% in the first quarter, 3% in the second quarter, and 2.8% in the third quarter, according to the U.S. Bureau of Economic Analysis.

The economy could expand by 3.3% in the current quarter, according to a forecast released by the Atlanta Federal Reserve on Monday.

Like small business owners, leaders of the nation's largest companies are also optimistic about the future, the Business Roundtable said on Tuesday in releasing its fourth-quarter CEO Economic Outlook Survey.

The Business Roundtable's composite index, which measures CEO expectations for capital expenditures, employment, and sales over the next six months, hit its highest level in more than two years, the organization said in reporting its quarterly survey.

"With Washington preparing to consider measures that can protect and strengthen tax reform, create a sensible regulatory environment, and drive investment and job creation, business leaders are energized to engage with the new administration and Congress on policies that further boost the economy," Cisco CEO Chuck Robbins said in a statement. He also serves as chairman of the Business Roundtable.

Among small business owners, the monthly increase in optimism from October to November was the largest jump in the NFIB index since its inception in 1986, and more than double the monthly increase following Trump's first presidential election win in 2016, said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

"For now, small businesses are certainly cheering Mr. Trump's plan to cut the corporate tax rate for domestic companies without foreign affiliates from 21% to 15% and reduce regulatory burdens," he said on Tuesday.

However, the outlook is not without risks, Tombs warned in an email to clients.

"Tariffs and deportation threats could raise costs for small businesses and weigh on overseas sales if other countries retaliate," Tombs said. "The risk of a rapid deterioration in small business sentiment is high."

Additionally, high borrowing costs are hindering expansion plans for many small businesses, he noted, with the average interest rate on short-term loans last month at 8.8%, far exceeding nominal sales growth.

"External financing costs are so high that few small businesses will seek to expand anytime soon," Tombs said.