Small businesses close out 2018 in confident mood

By Brad Buttermore
Managing Partner and Chief Financial Officer

Optimism among small business owners remains at near record highs as 2018 draws to a close, although tight labor supplies have dampened enthusiasm slightly.

Small business owners have felt positive about the strength of the economy in 2018 and have responded with new jobs, higher wages and business expansion during the year.

The November survey by the National Federation of Independent Business (NFIB), which was released Dec. 11, dipped slightly in November to a seasonably adjusted level of 104.8, down 2.6 points from October’s reading and the third-straight month of declines.

The survey dropped the most in the “expected sales” and “expected business conditions six months out” categories while “job creation” and “capital spending” categories improved. A net 9% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up one point and historically very strong, NFIB reported, and 30% or more of the owners in construction, manufacturing, retail and transportation reported quarterly improvements in sales.

The impact of low unemployment

Small businesses are having to pay more for labor as the employment market continues to be exceedingly tight, a potential drag on future earnings.

The U.S. unemployment rate registered 3.7% in November, unchanged from the previous two months. The economy added 155,000 jobs in November, while wages grew at 3.1%, according to the Bureau of Labor Statistics.

The BLS reported job gains across a variety of sectors: health care, manufacturing, transportation and warehousing, among them.

Through November, professional and business services had added the most jobs in 2018: 561,000. That was followed by health care, 328,000 jobs, and manufacturing, 288,000 jobs.

This is the most recent look at employment data before the Federal Reserve’s policymaking branch, the Federal Open Market Committee, meets Dec. 18-19 to determine whether to raise interest rates. Although there have been more calls recently for the Fed to pause interest rate hikes, including from President Trump, the consensus seems to be that a quarter point increase is likely, although some believe there will be fewer rate hikes in 2019.

How will the economy perform in 2019?

How the economy fares in 2019 is still up for debate, as equity investors get jittery about entering the 10th year of the current expansionary cycle, and as economists try to gauge the effect of new tariffs and potential for retaliation by trading partners.

Even with stock market jitters, tariffs and a cooling housing market, there’s still significant optimism that the U.S. economy will continue to grow in 2019, albeit at a slower rate than 2018.

At Capital Alliance, we’ll be keeping a close eye on small business health, as small business remains the backbone of the economy. For now, we remain optimistic that more growth is on the way.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40+-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human resource management.