Small business owners turned more pessimistic in December than they have been since the pandemic erupted last spring, with the National Federation of Independent Business (NFIB) Small Business Optimism Index falling by a staggering 5.5 points from November and almost 9 points from October, when it nearly matched its pre-crisis high. Nine of the ten index components declined, and the percentage of owners expecting better business conditions over the next six months declined 24 points to a negative 16%.
At the same time, however, American consumers were slightly more optimistic about the near-term outlook for the U.S. economy, as the vaccine rollout, stimulus checks, and new stock market highs eased the hit from increased COVID-related restrictions and layoffs. The IBD/TIPP Economic Optimism Index rose 1.1 points in December to 50.1, above the neutral level of 50, and the IBD/TIPP Financial Related Stress Index eased 1.7 points to 63.7, the lowest level since September.
While the surveys continued to show that high-income investors are significantly more optimistic than low-income non-investors, all groups were more optimistic about economic conditions in December than November. This despite the net loss last month of 140,000 jobs – a somewhat misleading number when one considers that restaurants and bars slashed a staggering 372,000 positions. Most other industries continued to hire in December.
Optimism should be the prevailing mood. The new administration is pushing another stimulus package that is twice the size of that passed in late December and is focusing on increasing the vaccination rate markedly beyond that of the thus-far disappointing rollout. With more vaccines becoming available and distribution mechanisms likely to improve significantly, vaccination rates should increase steadily, and we may approach, if not achieve, herd immunity by summer.
Barring an unforeseen setback, these developments should enable the economy to recover more quickly and robustly than it normally does following a traditional recession. Citibank’s chief economist predicts that the global economy should rebound from an annual contraction of negative 4% in 2020 to a positive growth rate of 4.2% in 2021. And that significant economic recovery rate may be trumped by a substantially greater rise in global trade volumes, with the International Monetary Fund predicting that world trade volumes in goods and services could rise by 8.3% in 2021.
Much of this optimism has already been priced into the stock market, which has continued to spike to record highs since the November election. Financial markets often serve as leading indicators of future economic performance, as stock prices reflect investors’ expectations, not their assessment of current conditions. That the markets have continued to soar – even in the face of last month’s depressing unemployment and infection rates – underscores a prevailing view that better days are ahead.
Lauren Irwin-Szostak is the President of Business Processes Redefined, LLC, a call center solutions management firm headquartered in Fairfield, New Jersey which is certified as a woman-owned business enterprise by both the New Jersey Woman-Owned Business Enterprise (NJWBE) and the Woman’s Business Enterprise National Council (WBENC).