December 10, 2024
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Small business optimism jumped 8.0 points in November to 101.7 after climbing 2.2 points in October and 0.3 point in September. The level is finally above the 40-year average so-called breakeven point for this series which is 98.0. This is the highest level for this index since June 201.
NFIB Chief Economist William Dunkelberg said, “The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners. Main Street also became more certain about future business conditions following the election, breaking a nearly three-year streak of record high uncertainty. Owners are particularly hopeful for tax and regulation policies that favor strong economic growth as well as relief from inflationary pressures. In addition, small business owners are eager to expand their operations.”
We expect to see GDP growth of 2.5% growth in the fourth quarter followed by roughly comparable growth in 2025. . The economy still seems to be growing at respectable pace..
The core CPI is expected to slow to 3.2% by yearend which is still well above the Fed’s 2.0% target pace. It should continue to moderate to 2.9% by the end of 2025. The Fed does not expect the core rate of inflation to return to 2.0% until 2026.
The funds rate currently is 4.6%. The Fed will continue to lower rates gradually through the middle of next year. The so-called “neutral” funds rate used to be about 2.8% but it now appears to be higher, perhaps around the 3.5% mark.
With GDP growth continuing at a respectable pace, inflation very gradually slowing, and the Fed likely to further reduce interest rates, it is not surprising that small business owners have finally become somewhat more pessimistic. The promise of significant elimination of many onerous, confusing, and duplicative regulations should benefit all businesses, but particularly small business owners.
Stephen Slifer
NumberNomics
Charleston, SC
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