February 11, 2025
.
Small business optimism declined 2.3 points in January to 102.8 after rising 3.4 points in December and having jumped 8.0 points in November. The level is finally above the 40-year average so-called breakeven point for this series which is 98.0.
NFIB Chief Economist William Dunkelberg said, “Overall, small business owners remain optimistic regarding future business conditions, but uncertainty is on the rise. Hiring challenges continue to frustrate Main Street owners as they struggle to find qualified workers to fill their many open positions. Meanwhile, fewer plan capital investments as they prepare for the months ahead.”
We saw 2.3% GDP growth in the fourth quarter. We expect to see 3.0% GDP growth in 2025. . The economy still seems to be growing at respectable pace..
The core CPI is expected to be fairly steady at 3.4% by yearend which means that the core personal consumption expenditures deflator should rise about 2.9% in 2025. This is the inflation measure that the Fed targets at 2.0%.
The funds rate currently is 4.6%. 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. Thus, Fed policy remains slightly restrictive. The Fed may choose to keep policy steady until such time as the core PCE inflation rate falls closer to the 2.0% mark.
With GDP growth continuing at a respectable pace, inflation very gradually slowing, and Fed policy steady, it is not surprising that small business owners have finally become somewhat more optimistic. The promise of elimination of many onerous, confusing, and duplicative regulations should benefit all businesses, but particularly small business owners.
Stephen Slifer
NumberNomics
Charleston, SC
Follow Me