Economic Snapshot: Small business optimism, builder confidence at pre-recession highs

Small business optimism is above the 42-year average for the third time since 2007 and builder confidence is at its highest level in over 11 years. These bumps can both be attributed to post-election sentiments.

NFIB Small Business Optimism Index

Small business optimism improved 3.5 points to 98.4 in November, which is just above the 42-year average. This is the third time since 2007 the index has broken into the above-average territory.

Plans to hire jumped five points from the previous month. Expected higher sales rose from a net 1 percent in October to net 11 percent in November. Expected better business conditions sored from a net negative 7 percent to a net positive 12 percent.

“Even without separating the data, the November results paint a starkly different picture than what we’ve seen in the last 94 months,” said NFIB Chief Economist Bill Dunkelberg.

Small business optimism was highly impacted by the 2016 election, as optimism was essentially flat in the days leading up to the election. Job creation plans increased from a net 9 percent through Nov. 8 to a net 23 percent after the election. Expected higher sales rose 16 points, from a net 4 percent to a net 20 percent. Expected better business conditions rose from a net negative 6 percent to a net positive 38 percent, a massive 44-point spike.

“If higher optimism can be sustained, I expect that in the coming months we’ll see an increase in business activity, such as hiring and expanding,” said Dunkelberg.

According to the NFIB, whether small businesses remain optimistic “depends on whether the incoming Trump administration and congressional leaders follow through on their plans to reform the tax code, repeal regulations and fix the broken health insurance system.”

Housing Market Index

Builder confidence jumped seven points to a level of 70 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since July 2005.

“This notable rise in builder sentiment is largely attributable to a post-election bounce, as builders are hopeful that President-elect Trump will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “This is particularly important, given that a recent NAHB study shows that regulatory costs for home building have increased 29 percent in the past five years.”

All three HMI components rose in December. The component gauging current sales conditions climbed seven points to 76 and the index charting sales expectations spiked nine points to 78. The component measuring buyer traffic rose six points to 53, marking the first time the gauge has been above 50 since October 2005.

Looking at three-month moving averages for regional HMI scores, the Northeast rose six points to 51, the Midwest jumped three points to 61, the South increased one point to 67 and the West registered a two-point gain to 79.

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