Small Business, Big Impact

What's going on here?

Small businesses in the US are more confident in the economy than they have been in more than a decade – and this is a big deal because, to a large extent, small businesses are the lifeblood of the economy.

What does this mean?

In July, only 12% of small business owners expected the economy to improve; now more than 50% do. That’s a huge improvement in sentiment! As businesses get more confident, they’re more likely to hire workers and spend money on things like equipment or IT infrastructure. This, in turn, boosts the economy and creates (in theory, at least) a sort of virtuous circle of economic activity.

Why should I care?

The bigger picture: Small businesses are a hugely important part of most large economies.

It might appear that big companies dominate the business landscape, but 48% of workers in private employment in America (e.g. non-government workers) work at small businesses (defined as less than 500 employees). The comparable figure is 60% in the UK. As a result, the attitude of small business owners – and their actions – matters big time.

For the markets: Stocks have moved much higher as almost everyone has become more positive.

It’s not just small businesses that are feeling optimistic: investors have pushed US stocks up 9% since the US presidential election in early November. While it’s clearly good news for the economy that small businesses (and investors) are feeling so confident, stock prices have already moved to capture at least some of that change in sentiment. The fact that the election acted as somewhat of an inflection point suggests investors are banking on politicians passing new pro-business laws – and that means that the risk to investors of politicians not delivering has become greater.

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