Small businesses’ optimism is spiking, a sign that the pickup in economic growth may be a sustainable trend.
On Tuesday, the National Federation of Independent Business reported that its Index of Small Business Optimism jumped to 106.9 in its first-quarter reading. That’s the highest level for the quarterly reading in 34 years.
The strong showing signals that first-quarter GDP growth will run 3% or higher. Combine that with annualized growth of 3% in the last three quarters of 2017, and you would have four-quarter growth of 3%. That’s a solid performance and an encouraging sign that Trumponomics may indeed be accompanied by a sustained pickup in the economy’s overall performance.
I say “accompanied by” because we’ll never really know if Trump deserves credit for faster GDP growth. There can be little doubt, however, that the marked improvement in the Small Business Optimism Index can largely be credited to the Trump presidency.
In the fourth quarter of 2016, when virtually everyone expected that Trump would lose the election, the optimism reading was 94.9. An 11-point jump to 105.9 in first quarter 2017—at that point, the highest level in nearly 13 years—can only be attributed to the unexpected win by Trump, along with the Republicans maintaining control of Congress.
The only question over the past year was whether the quarterly reading would remain around 105, after languishing around 95 through the presidency of Barack Obama. So far—with the first quarter reading of 106.9—small businesses’ thumbs-up to Donald Trump has been sustained.
It’s true that the monthly version of the Small Business Optimism Survey had already hit 107.5 in November, but those monthly updates have a shorter history than the one-a-quarter version, and are based on much smaller samples and response rates. The optimism index was badly in need of a quarterly confirmation, which it got.
As the chart shows, the last surge of similar magnitude for the NFIB’s index happened in 1982-83, when the economy was rebounding from the 1981-82 recession. The NFIB’s quarterly Index of Small Business Optimism over its 44-year history has averaged 100 or higher through every sustained economic expansion but one. That one exception had been the expansion under Obama, and it may be no coincidence that this has been the slowest expansion on record.