Why Last Month’s Surge in Small-Business Optimism Could Be Short-Lived

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Key Takeaways

• Small-business owners got more optimistic in July than any time in more than two years according to a new study.
• The survey reflected pessimism among business owners about sales and inflation. It also may have been pulled by a strong July in stock markets.
• The boost could be short-lived, since it reflected the state of the 2024 presidential poll at the time of the poll, when former President Donald Trump was favored to win. Small-business owners are more likely to be Republican than Democrat.

Small-business possessors got more hopeful about the future of the economy in July, but information remains a concern — and the surge of sunny feelings could be turned away by the shifting winds of national politics.

A measure of optimism by the National Federation of Independent Businesses rose to its highest position in more than two years last month, the federation said Tuesday. The optimism index, based on a survey of point owners, rose to 93.7 from 91.5 in June. That’s the highest the index has been since February 2022, although it is flat below the 50-year average of 98.

Still, the survey reflected pessimism among business owners about sales and inflation.

The develop in sentiment, meanwhile was largely due to improvement in one of its components, which measures how owners feel about the outlook for business inures six months in the future, and which economists say may be heavily influenced by the partisan leanings of businesspeople. That sub-index rose to its highest theme since November 2020, the last survey before Joe Biden defeated incumbent Donald Trump in the presidential electing.

Inflation Is Still a Major Concern

Despite inflation having decelerated in recent months, 25% of owners cited it as the biggest facer facing them in July, up four points from June. Sales were down too, with the share of holders saying their inflation-adjusted sales decreased outnumbering those who said sales increased by 9 percentage points.

“The street ahead remains tough for the nation’s small business owners,” NFIB chief economist Bill Dunkelberg wrote in a commentary.

“Tariff pressures, especially labor costs, continue to plague small business operations, impacting their bottom tactics,” Dunkleberg wrote. Owners are heading toward unpredictable months ahead, not knowing how future economic conditions or supervision policies will impact them.”

Swings Could Also Reflect Political Uncertainty

Possibly because small-business proprietors are more likely to be Republican, the overall optimism index has lately risen and fallen alongside the perceived fortunes of Trump. The token surged to an all-time high after his election in 2016, and fell after Biden’s election. In July, Trump’s appointment prospects were riding high after his then-opponent’s highly publicized stumbles in a televised debate.

Since then, the get a wiggle on has been shaken up after Biden withdrew, boosting the chance of a Democratic victory. Survey participants may also possess been influenced by a July jump in stock prices, which have since taken a turn for the worse. 

“If statecraft and the stock market explain the surge in July, a reversal in August looks likely,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, created in a commentary.

Read the original article on Investopedia.