Small business optimism shot up unexpectedly following the election of President-Elect Donald Trump to the highest level since 2021. In nearly every category, the nation’s economic engine expressed hope for the future. 

Policies and certainty matter to entrepreneurs and small businesses. They have been pessimistic about inflationary laws and onerous new regulations during the past nearly four years, but deregulation and restrained federal spending motivate them to believe that the economy will do better and they will flourish.

What happened?

The National Federation of Independent Business released findings from its monthly survey of the nation’s small businesses. The results are encouraging:

  • The Optimism Index rose by 8 points in November to 101.7, after 34 months of remaining below the 50-year average of 98. 
  • The November optimism reading is the highest reading since June 2021. 
  • Nine out of ten optimism measures rose, and one remained unchanged. 
  • The Uncertainty Index declined 12 points as business owners became more certain following the election.

NFIB Research Center executive director Holly Wade told Yahoo! Finance: 

Last month, we saw a huge surge in our index looking at small business optimism. The biggest contributor to that was the general business conditions. Far more small business owners were saying that they anticipate business conditions improving over the next six months, but also increased spending [and] increased sales at their business.

We can gather a few key takeaways from this index:

  • Inflation is still weighing small businesses down. One out of five (20%) of owners reported that inflation was their single most important problem in operating their business. While this percentage fell by 3 points from October, it demonstrates that small businesses are still struggling with high prices as households are. 
  • Government spending has propped up economic growth and employment to the detriment of small businesses. All small businesses can flourish when economic growth is driven by the private sector, not federal spending. Much of the economic and employment growth over the past nearly four years has been from large spending bills. Not only are these bills inflationary, but they only helped a small percentage of firms that benefitted from those federal contracts. Interest rates skyrocketed as the Federal Reserve attempted to tame inflation, and those interest rates hobbled small businesses.
  • Small businesses view Trump’s agenda of boosting the U.S. to the top energy producer, cutting taxes, and cutting spending as the way to go. Energy production will drive down prices because energy costs are in everything produced, and that will drive down prices. Cutting taxes and federal spending will be positive for small businesses. As the Fed continues to cut interest rates, small businesses have the certainty to invest in their businesses and plan for the future.

A Trump 2.0 is expected to be a boom for the U.S. economy, which has been propped up by massive and inflationary spending. Small businesses have seen from Trump 1.0 that we can grow the economy without growing prices and borrowing costs. We do too.