by William Bruce
Small business earnings are the highest in decades and business confidence is spiking.
According to results of a recent National Federation of Independent Businesses (NFIB) survey, small business earnings rose in April to the highest levels in at least 45 years.
The NFIB said that small business earnings were the highest in the history of its surveys, which began in 1973, and also noted that small business optimism increased in April to a level in the top 95th percentile of its all-time average.
“Never in the history of this survey have we seen profit trends so high”, said CEO Juanita Duggan. “The optimism small businesses owners have about the economy is turning into new job creation, increased wages and benefits, and investment.”
Summarizing reasons for the soaring optimism, NFIB Chief Economist Bill Dunkelberg said, “Consumer spending, the new tax law, and lower regulatory barriers are all supporting the surge in optimism across all small business industry sectors,”
Another national survey done by the U.S. Chamber of Commerce confirms much of the above. The Chamber’s first quarter Small Business Confidence Index shows the largest quarterly jump for the first quarter of 2018 in the history of the index. Nine out of 10 business owners surveyed are expecting 2018 to be a good year.
However, the Chamber’s index did reflect some caution among small business owners. The Chamber reported that “Although optimistic, small businesses are still taking a cautious approach. While anticipating a strong year, small businesses plan on spending conservatively, with more small businesses expecting to save profit (51%) rather than invest profit (39%),” perhaps attributable to the memory among business owners of the Great Recession of 10 years ago.
Interestingly, the index also spotlighted some regional differences. The southern states had the most optimistic outlook with the western states reporting the least optimistic. The eastern and midwestern states were in the middle of the range. But all were very high compared to the historical averages.
And yet another survey by the outplacement firm of Challenger Gray & Christmas, Inc. reveals that a relatively high percentage of their job seeking clients have chosen to start their own businesses rather than remaining in the job market. An average of eight percent of job seekers started a business in the first quarter, the highest percentage in 5 years. The results were obtained from a quarterly survey of over 3,000 job seekers nationwide.
A confirming report by one of the nation’s largest business-for-sale websites validates this entrepreneurial enthusiasm. The firm’s 2018 first-quarter report showed a record-breaking quarter in the business-for-sale marketplace for both the valuation of small businesses and the number of completed transactions.
So how long will this activity and optimism last? Predicting such things is akin to sprinkling salt on a sparrow’s tail. It’s inherently difficult.
But consider these interrelated thoughts:
- The Federal Reserve is doing a better job of managing the macroeconomy versus a few years ago. The Fed “went to school” on the Great Recession.
- Gross Domestic Product is expected to grow by three percent this year compared to two percent last year.
- Inflation, currently running under three percent, is not a pressing concern.
- Interest rates are still low enough to make a lot of business transactions workable.
- Core business spending on fixed assets in 2018 will be up by about seven percent. That will be on top of last year’s solid five percent increase.
- Consumer confidence and spending are at high levels.
Developments that might slow or end the growth include:
- The start of a significant trade war.
- A major terrorist initiative by Iran or other rogue nation.
- Micky Mouse announcing that he is divorcing Minnie. (Hey — just want to make sure you were still awake! Discussing the economy for most folks works better than Ambien.)
So what do you think about the economic outlook? Please let me have your thoughts.
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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership. His practice includes consulting services nationally on issues of business valuation and transfer. He currently serves as president of the American Business Brokers Association. He may be reached at (251) 990-5934 or by email at Will@WilliamBruce.org. His website offering profitable businesses for sale may be viewed at www.WilliamBruce.net.