Small business optimism soars to near 8-year high

December 9, 2014, 1:23 PM UTC
Small But Thriving Businesses: Connelly Hardware
BROOKLINE, MA - NOVEMBER 21: Kathleen Connelly Kenney, the owner of Connelly Hardware in Washington Square, took over the business from her father, John Connelly, who bought it in 1951. (Photo by Lane Turner/The Boston Globe via Getty Images)
Photograph by Lane Turner — Boston Globe/Getty Images

Optimism among small business owners has grown to its highest level since the beginning of 2007, a rosier view thanks to expectations the economy will continue to improve.

The Small Business Optimism Index grew by 2 points to reach 98.1 for November, according to a survey of small and independent business owners polled by the National Federation of Independent Business. The reading was far above the 96.1 projection by economists.

The entire gain in the index was attributed to improvement in two components: sunnier expectations for business conditions in six months and hope that sales volume will improve. What didn’t improve, according to the NFIB, were key “hard” index components. That means plans to create more jobs, spend more capital, and adjust inventory didn’t gain any traction last month.

That is a bit of a disappointment, as small businesses have helped fuel some recent job growth in the private sector. Small businesses added more than 100,000 jobs to their payrolls last month, adding almost half of the total gains notched by the private sector.

On a positive note, NFIB said the November elections “clearly had no impact on hiring and spending plans,” though expectations for better business conditions in six months improved, likely a response to Black Friday or Small Business Saturday results.

The economy has reported solid growth the past two quarters after a brutal winter temporarily dented the U.S. recovery. Gross domestic product in the third-quarter grew a better-than-expected 3.9% according to the government’s latest reading, better than what economists had hoped for. But the NFIB points out that the strong growth over the past six months, which it called “one of the best growth periods in decades,” didn’t do much for small business job creation. One reason is that much of the growth was driven by inventory building, and some defense outlays and exports — activities that don’t involve many small businesses.

NFIB also struck a cautious tone about a new round of healthcare costs that will hit business owners the next few months.

“Just what impact this will have on spending remains to be seen,” the NFIB said.