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State of Small Business – Optimism on Economy Remains Strong

April 16, 2018  -
image of spreadsheet with charts showing improvement with a magnifying glass over it

As we head into April, we wanted to reflect on 2017 and the roller coaster ride many experienced during first quarter of 2018. They say March enters as a lion and exits as a lamb. This March may have been turned on its head.

First, let's take a step back. If 2016 was a year to remember, 2017 was a year that we won't forget. We saw a continued political divide in the country, real estate markets booming, North Korea monopolizing headlines, and on the business front, 2017 was a big year as well -- making headlines with the stock market soaring to all-time highs.

We didn't seem to miss a beat over the holidays, hitting new highs in the stock market that continued the first week in January with the Dow breaking 25,000 for the first time after strong jobs growth and Nasdaq seeing record closing highs. As a matter of fact, economic points from the rise in IPOs, to better earnings reports from companies, to strong economic growth globally all contributed to a surprisingly strong year.

So, will that trend continue?

In November 2017, Goldman Sachs analyst Charles Himmelberg and his team stated they expect the global economy to grow 4% in 2018 for several reasons, including strong growth momentum, easing financial conditions, global monetary policy remaining highly accommodative by historical standards and the likelihood of fiscal stimulus in the U.S. And, that tone of economic optimism is being reiterated from many sources.

We entered a Golidlocks Economy in 2017, with a good balance or ideal growth rate, that continued into 2018. The Gross Domestic Product (GDP) is expected to remain between 2-3% and unemployment is forecast to continue at a natural rate, or about 4-5%. Neither inflation nor recession. The porridge is just right.

March 2018 saw political moves that made an unforeseen impact in the markets with dramatic falls of 724 and 425 on two days in one week after Trump signed an executive memorandum that would impose tariffs up to $60 billion on Chinese imports. As of entering the last week in March, however, the market is still over 3,000 points.

Economic Confidence Steadies – Still a bright 2018 for SMBs

Near term outlook has changed for the overall economy, but how does that play out for Main Street USA during 2018? In late January the central bank district was calling for a 5.4% GDP gain, however, it released a reading March 21 for its widely followed GDPNow tracker which shows it reduced that projection down to 1.9% for Q1. This is on par with the 2% we have been seeing with the recovery.

As The Conference Board pointed out in mid-March, for Q1 and full year 2018, “The business environment for this year and next still looks bright, especially because the labor market created more than 200,000 jobs per month over the past six months.” We need to look at what 2017 brought to the economy to see how the factors play a part in the different outlooks we gathered for 2018.

In the Q4 2017 Vistage CEO Confidence Index SMB CEOs voiced the most optimistic economic outlook in 14 years based on expectations for strong hiring, business investment and earnings outlook.

The Private Capital Access (PCA) Index report from Dun & Bradstreet and Pepperdine Graziadio Business School shows strong small to medium sized business (SMB) results for 2017 and optimism for 2018. The quarterly report compares economic factors on a quarter over quarter basis and the fourth quarter 2017, the results show strong expectations for 2018 based on:

  • 84% of SMB owners expect their business to perform better in 2018 than in 2017, up from 72% the previous year.
  • Fewer SMBs, a major source of employment and economic activity for the U.S., reported that the current business financing environment is hindering their growth opportunities for their business.
  • Small businesses are more optimistic in their ability to raise financing in the next six months than they were a year ago, with 55% reporting it would be "difficult" to qualify for debt financing, down from 61% in Q4 2016.

Small Business Optimism Sets Record in 2017

NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973. NFIB reported that 2017 was the strongest year ever in the history of the survey with data showing the average monthly Index for 2017 at 104.8, over the previous record of 104.6 set in 2004.

text of quote by Juanita Duggan of NFIB stating that 2017 was the most remarkable year in the 45-year history of the NFIB optimism index 

NFIB shared the following economic survey results:

graph depicting the NFIB optimism index from january 2000 through december 2017

The Equipment Leasing & Finance Foundation (ELFF) released their latest assessment in mid-January that also pointed to growing confidence. The January Monthly Confidence Index (MCI) stood at 75.3, up from 69.4 in December 2017. This is the highest mark set over the last two years. ELFF shared survey results from business executives from primarily banking and independent segments, that showed optimism for:

  • Future outlook: 61.3% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 42.9% in December.
  • Investments in businesses: 67.7% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 46.4% in December, and,
  • Access to capital: 35.5% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 25.0% in December

ELFF shared their MCI chart below and additional comments on the survey results.

Graph depicting the MCI-EFI 24-month confidence index for the equipment finance industry

With the recent tax overhaul approved in December, SMBs that were considering investments to grow and expand their business will be in a better financial position to approach a lender, like Ascentium Capital, for fast, flexible financing or leasing options. By capitalizing on business ideas during an economy like this, SMBs are able to take advantage of the steady economic confidence and set themselves up for a bright future.

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Ascentium Capital has provided businesses with nearly $4 billion in capital to allow SMBs to accelerate growth and follow their expansion dreams. If you're looking to invest in your business for the future, Ascentium Capital can help.

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