In November, small business optimism in the United States reached an impressive 101.7, marking its highest level since June 2021 and surpassing previous trends. This increase, which reflects an 8-point rise, breaks a lengthy period of underperformance against the 50-year average of 98. Economic analysts were initially predicting a modest improvement, expecting the index to only rise to 95.3. Among the key components of the optimism index, nine experienced growth, while just one remained unchanged.
Additionally, the uncertainty index dropped significantly, losing 12 points and landing at 98. NFIB Chief Economist Bill Dunkelberg remarked, "The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners." He noted that Main Street's sentiment improved, with business owners feeling more assured about future conditions after nearly three years of heightened uncertainty. Interestingly, inflation is still viewed as the primary concern for 20% of small business operators, although this figure has slightly decreased by three points from October.
Labor quality has been edged out by inflation as the leading issue, indicating shifting priorities. The expectation for economic improvement has notably surged, advancing 41 points from the previous month, now standing at 36%. This is the highest expression of optimism since June 2020. Moreover, a significant number of business owners are now inclined to expand, marking the highest confidence level for this sentiment since June 2021.
The anticipation of increased real sales volumes also grew, with an 18-point rise contributing to a net 14%, the most substantial level seen since February 2020. Economist Andrew Foran from TD Economics noted, "The Republican sweep in Washington enhanced expectations for a more accommodative fiscal and regulatory environment in the coming years." Business owners are also adjusting pricing strategies, with the net percentage of those raising average selling prices increasing three points from October to 24%.
This persistent pricing behavior resembles the current trends in core personal consumption expenditures, as Foran highlighted. While plans to increase employee compensation are gaining attention amid improving labor market conditions, the potential risks to the Federal Reserve's current trajectory of rate cuts appear minimal.
Foran anticipates that the Federal Open Market Committee will execute a 25 basis point rate cut this month, following a total of 75 basis points cut since September..