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Despite economic uncertainty, looming trade wars, and political tensions, America’s small businesses reported record-high levels of confidence this quarter, according to data from the latest MetLife & U.S. Chamber of Commerce Small Business Index. The overall Index score increased again this quarter to 71.3, up 0.6 points from the third quarter, marking the highest number since the Index’s inception and the second consecutive quarter in which the Index reached an all-time high. But this overall optimism contrasts sharply with growing pessimism reported by small manufacturers in the Index–which may be being driven by uncertainty over growing trade tensions.
The survey of 1,000 small business owners shows that more than 71% of them have a “strong outlook” of the small business environment and optimism about their own business health. What’s more, the pace of small business hiring is hot: one in five (20%) small businesses report increasing their staff size this past year, the highest percentage in the Index’s history.
Small businesses’ robust view of their local economies is driving this optimism. The number of small business owners who have a positive outlook of their local economies increased three percentage points from Q3 to 59%. Not only do small businesses see strong local economies, more than half (57%) believe that the U.S. economy is in good health, continuing an overall positive trend since the Q1 2019 finding of 53%. Midwest small businesses rank as the most optimistic concerning the national economy, with 62% of business owners believing the economy is in good health.
Looking at demographic trends, minority-owned and millennial-owned business are driving hiring and investing plans with 36% of minority-owned small businesses having plans to grow staff compared to 27% of non-minority owned businesses. Additionally, more than half (51%) of millennial-owned businesses have plans to grow their staff. In comparison, just 25% of the Baby Boomer generation or older owners have plans to increase staff.
Small Manufacturers Grow Nervous
But as always, it’s not all optimism out there and small manufacturers, in particular, are showing their unease this quarter by almost every measure.
For starters, small manufacturers have become more pessimistic about the national economy over the last two quarters with a decline of 11 points (from 69% in Q2 to 58% in Q4). Small manufacturers are also the least likely sector to plan to increase investments (19%) compared to 26% for all small businesses. And manufacturing remains the least optimistic compared to other sectors on expected revenue growth (although it is higher than last quarter, which was 49% in Q3, and is now 54% in Q4). The sector’s hiring plans (31%) are statistically unchanged since last quarter (32% in Q3 2019).
Although the Index did not ask specifically about trade, one can’t help but wonder whether consistent worries about tariffs, the trade war with China, and on-again, off-again steel and aluminum tariffs might be having a cumulative effect on manufacturers’ outlooks. It also makes sense that small manufacturers—with their longer planning horizons and vulnerable supply chains—might be feeling the effects of trade tension first. This quarter’s Index’s findings mirror lackluster results from manufacturers in the ISM Manufacturing Index released earlier this week.
The negative impact isn’t evident from statistics alone: small business owners themselves have clearly said tariffs are having a negative impact. Teresa Hack, president, and chief operating officer of Channel Products, a Cleveland, Ohio-based manufacturer said tariffs could cost her small company up to $1 million.
“These tariffs will continue to do irreparable harm to our small business. Section 301 tariffs have resulted in an unexpected cost of over $600,000, which is significant for a small business like ours…We have determined that an additional cost [of threatened tariffs]… on our business would be almost $1 million.”
Tariffs are taxes, plain and simple, as the U.S. Chamber and others have noted. It’s time to call a truce in the trade war, remove burdensome tariffs, and provide American small businesses with some much-needed certainty. Certainty enables businesses to make long-term planning, investment, and hiring decisions. Certainty reduces the cost of consumer goods, puts money in workers’ pockets, and enables economic expansion. Otherwise, we risk watching as manufacturers’ pessimism deepens and potentially spreads to other sectors of the economy just as we get ready to start a new year. Let’s hope decisionmakers take a step back, make the right call, and give Americans a little something extra to be happy about this holiday season. It’s not too late.
Click here to learn more about the impact tariffs are having on Americans.
The Index is part of a multiyear collaboration by MetLife and the U.S. Chamber to elevate the voice of America’s small business owners and highlight the important role they play in the nation’s economy.