Hot Take: Why Are Small Business Owners So Happy?

A reader writes that he’d like my take on “the single weirdest trend I’m aware of in American opinion: small business optimism.” I aim to please, so here’s my hot take. First off, here’s the small-business optimism index from NFIB, via Calculated Risk:

Next up are a couple of other charts from NFIB’s website:

There are a few things to note:

  • In the top chart, small business optimism unquestionably spiked after Donald Trump’s election.
  • At the same time, as the eyeball trendline shows, this was basically a reversion to trend, making up ground from a mysterious decline in 2015.¹
  • The two bottom charts don’t measure optimism. They measure what small businesses are actually doing. And the answer is: nothing much. Hiring has gone up slowly but steadily since the end of the recession, with no particular Trump bump. Plans to hire have done the same.

There’s more data at the NFIB site, but it tells a reasonably consistent story: economic conditions have been getting better since the recession ended, and small businesses have responded the way you’d expect. If you take a look at what they’re actually doing—and planning to do—Trump’s election appears to have had only a modest effect.

In other words, small business optimism is mostly a false front, not anything real about how he’s expected to affect the economy. There was sort of a pent-up demand to rebound from the unwarranted fall in optimism during 2015, and when you combine that with a lot of support for Trump, you get a spike in reported optimism. When it comes to actual hiring decisions, however, it’s obvious that small businesses aren’t all that optimistic about what a Trump administration will do.

Bottom line hot take: small business owners surveyed by NFIB just really love Trump. That’s it.

¹Why did small business optimism decline so much in 2015? Well, 2015 was the first year of the recovery in which workers saw healthy pay increases. This made business owners sad. Wage increases stopped in 2016, and that made them happy. There’s probably not much more to it than that.

POSTSCRIPT: I will mention one other little oddity. In the full NFIB report, small businesses report a noticeable uptick in actual sales and earnings since Trump was elected. This makes no sense, since the economy has been growing pretty steadily for the past several years. It makes you wonder just how reliable these reported numbers are.


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