The post-election November survey of small business CEOs recorded a 5.9% gain in economic confidence from October, and the first year-to-year gain in the Confidence Index since July of 2015. CEOs provided more favorable assessments on all Index components, with the largest improvement in the year-ahead outlook for the U.S. economy. The WSJ/Vistage Small Business SEO Confidence Index was 102.4 in the November 2016 survey, up from 96.7 in October and just above last year’s 101.9.
When asked about the impact of the election, 55% of CEOs said Trump’s election would result in an improved economy, 40% said it improved prospects for their own firm, and 20% said it would cause them to increase their hiring and planned investments.
To be sure, some CEOs expected Trump’s election to have a negative impact on the economy (28%) and their own firm’s business prospects (20%). After taking into account the net impact, the gains exceeded the declines on all potential areas. As might be anticipated, the initial impact was largest on overall economic and business prospects, and much smaller, but still positive, on hiring and investment plans. Presumably, small firms like most others were surprised by Trump’s victory, and more importantly, do not know the specific economic proposals and regulatory changes his administration would actually propose and implement. The initial reaction was quite positive, like any honeymoon, but a successful partnership will take time to develop and require hard work and compromise.
Growth Rate Expected to Improve. Among all small business CEOs, 46% expected the economy to improve in the November survey, double last month’s 23%, and just below the peak of 48% recorded in late 2014. Nearly all of this gain can be attributed to the impact of the election, since when asked about current conditions in the economy, just 28% of all CEOs reported recent improvement, barely above last month’s 25% and still well below last year’s 36%. The rapid rise in favorable expectations for the economy is based on anticipated changes in economic policies and regulations, and those favorable expectations need to be repeatedly reconfirmed by ongoing progress toward those goals. An administration can expect no greater benefit than having favorable expectations speed up desired change, and no worse nightmare than having policy initiatives be greeted by negative outcome expectations.
Expansionary investment plans were reported by 44% of CEOs in November, between last month’s 37% and last year’s 46%. The small gain from last month is consistent with the reported small net impact of the presidential election: 20% of CEOs said they would increase investments versus 13% reporting decreases in capital spending.
Revenues & Profits.
Growing revenues were expected by 72% of CEOs in November, just ahead of last month’s 69% and last year’s 71%. Profits were expected to increase by 58% of CEOs in November, up from 55% last month and last year’s survey. While CEOs may be comfortable with expecting stronger economic growth in the overall economy due to the election, they need more positive evidence to adjust their revenue forecasts.
Plans to hire additional employees were reported by 58% of CEOs in November, just below the 52% recorded last month, and regaining the level recorded in April 2016. The presidential election recorded the second-smallest impact on net hiring plans. While the surprise election of Trump was immediately reflected in more favorable expectations for the economy, it will take more evidence of the size and timing of the anticipated policy changes before small business CEOs are confident enough to undertake the risks of ramping up hiring or investments.
– Analysis provided by Dr. Richard Curtin, University of Michigan
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