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3 Reasons U.S. Businesses Should Be More Optimistic

Small Business Activity Ahead Of Small Business Optimism ReportSmall Business Activity Ahead Of Small Business Optimism Report
A small business in Princeton, Ill.Photograph by Daniel Acker — Bloomberg/Getty Images

The U.S. economy may have recovered from the Great Recession, but risks ranging from currency volatility to an unstable oil market have left America’s mid-sized business owners and executives torn. While they expect their companies to perform well this year, their views of the greater economy aren’t nearly as optimistic. According to results from the 2016 JPMorgan Chase Business Leaders Outlook report, executives’ optimism about the U.S. and global economies fell significantly this year from last.

But while business leaders are expressing more pessimism than they have in years, the future may not actually be as dim as the report suggests. This is partly because executives were surveyed at the start of the new year, when markets were especially volatile — particularly the equities, commodities and foreign markets. And if we take a closer look at certain economic indicators, there are three big signs that suggest 2016 may offer a brighter outlook for business leaders than initially anticipated.

GDP is likely missing some vital components of economic activity.

People often link a healthy GDP growth rate with a healthy economy—and lethargic GDP with economic weakness. So when GDP growth slowed to a 1% annualized rate this past winter, many became concerned about the implications for the economic recovery. However, GDP estimates are likely missing some key elements of economic activity—particularly in regards to mobile technology and the emergence of digital marketplaces like Uber and Airbnb, as they’re increasing the productive capacity of the American workforce in ways that are difficult to measure.

Jobless claims are softening. Jobless claims are the most consistent and comprehensive gauge of the economy’s health, and they are at the lowest they’ve been in decades. While measurements like GDP growth are based on estimates, jobless claims (applications for unemployment benefits) are a concrete measurement of nearly all those who are recently unemployed. And the story being told by layoffs is positive: Over the past year, the rate of jobless claims has dropped—and it remains at a near-record low.

Lending activity is strengthening.

When the economy struggles, applications for loans typically drop—people and businesses don’t feel as comfortable making investments as they do when the economy is robust. So it’s encouraging to see that over the last year lending activity show signs of strengthening:
o U.S. banks’ balance sheets have expanded at an annual rate of 5%
o Commercial and industrial lending has achieved a 10% annual growth rate
o Consumer credit, as well as commercial real estate and mortgage lending, have accelerated

Even though business leaders are more pessimistic this year, they don’t appear to be changing their plans: The report shows that the majority of executives,70%, have positive expectations for their companies’ performance in the coming year, 65% expect revenue/sales to increase and 60% expect profits to increase.

Ultimately, as markets continue to rebound and businesses begin to reap the benefits of consumer spending, there’s reason to believe that 2016 will prove to be positive for US businesses.

John Simmons is Head of Middle Market Banking & Specialized Industries at JPMorgan Chase Commercial Banking.