Buoyed by the election of Donald Trump and the Republican Party’s control of Congress, confidence among U.S. small businesses stayed strong throughout 2017 — and well it should, given some of the trends in the economy.
The National Federation of Independent Business said the year was “an all-time record setter” for the NFIB Index of Small Business Optimism. It fell 2.6 points, to 104.9 in December, but the result was “still a historically exceptional performance,” the group said.
The NFIB average monthly reading for 2017 was 104.8. The previous record was 104.6, which was set in 2004.
“We’ve been doing this research for nearly half a century, longer than anyone else, and I’ve never seen anything like 2017,” NFIB chief economist Bill Dunkelberg said in a statement. “The 2016 election was like a dam breaking. Small business owners were waiting for better policies from Washington, suddenly they got them, and the engine of the economy roared back to life.”
Regulatory reform and a tax cut “answered two of the top three concerns for small-business owners,” the NFIB said.
“There’s a critical shortage of qualified workers, and it’s becoming a real cost driver for small businesses,” Dunkelberg said. “They are raising compensation for workers in order to attract and keep good employees, but that’s a positive indicator for the overall economy.”
The Commerce Department said retail sales rose 0.4 percent in December — the fourth monthly increase in a row — and they were up 5.4 percent from December of 2016. The National Retail Federation said sales in its industry climbed 5.5 percent in November and December, to $692 billion.
The trade group said wage increases, stronger employment and higher confidence “led consumers to spend more than had been expected.”
“We knew going in that retailers were going to have a good holiday season, but the results are even better than anything we could have hoped for, especially given the misleading headlines of the past year,” federation president and CEO Matthew Shay said in a statement.
“Whether they shopped in-store, online or on their phones, consumers were in the mood to spend, and retailers were there to offer them good value for their money. With this as a starting point and tax cuts putting more money into consumers’ pockets, we are confident that retailers will have a very good year ahead,” Shay added.
The Federal Reserve said its data on consumer borrowing, which lags the NFIB index by a month, rose by $28 billion in November, to a record seasonally adjusted $3.8 trillion.
“While a bit too soon to call a turn in trend from the slower growth seen since early ’17, there was strong growth in both cyclically sensitive categories, credit cards and autos,” T.J. Connelly, head of research at Contingentmacro, said in a MarketWatch story. “Autos will be important to watch going forward as we see if gains can continue without hurricane-related buying. So, too, will retail sales — for now November’s advances appear to have been funded with credit cards.”
Jack Kleinhenz, the retail federation’s chief economist, said in a statement that consumers were more comfortable using their credit cards at the end of the year.
“The economy was in great shape going into the holiday season, and retailers had the right mix of inventory, pricing and staffing to help them connect with shoppers very efficiently,” Kleinhenz said. “Strong employment and more money in consumers’ pockets, along with the news of tax cuts, clearly helped with the pace of shopping. The market conditions were right, retailers were doing what they know how to do, and it all worked. We think the willingness to spend and growing purchasing power seen during the holidays will be key drivers of the 2018 economy.”
The developments in consumer credit and retail spending occurred as core inflation, which strips out the volatile food and fuel categories, rose 0.3 percent in December. The Labor Department said that was the largest increase since January.
The department said its all-items index rose 2.1 percent for the 12-month period that ended in December, compared with 2.2 percent for the 12 months that ended in November.
“The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors,” Lewis Alexander, chief economist at Nomura Securities International Inc. in New York, told Bloomberg. “It’s in line with an economy operating at full employment.”
This holiday-shortened week will provide economy watchers with reports on manufacturing, housing and consumer confidence.
The Empire State Index, which tracks manufacturing in New York state, will be released today by the Federal Reserve Bank of New York. The Philadelphia Fed Index, which tracks the industry in the Mid-Atlantic states, will be out on Thursday from the Federal Reserve Bank of Philadelphia. Both will be January readings.
The Commerce Department will release reports on housing starts and building permits for December on Thursday, and the University of Michigan will release its preliminary Index of Consumer Sentiment for January on Friday.