Optimism among small businesses in the US rose to its highest level since 2018 in December in response to hopes President-elect Donald Trump’s pro-growth policies will be good for the business environment. With the uncertainty of the election now over, businesses got a bit of clarity on the economic path of the US. Stronger business optimism could result in more hiring activity and business investment.

• The NFIB Small Business Optimism Index rose to 105.1 in December from 101.7 in the previous month. This exceeded the 102.1 reading economists were expecting, based on a Bloomberg survey. November and December have seen strong gains in optimism. The increase in November was the largest ever recorded in a month.
• Compared to the previous month, more businesses are expecting better business conditions. Furthermore, more businesses expect sales to increase, and expressed a desire to expand their business given their expectations of a stronger business environment.
• Despite the improved optimism over the past two months, business owners continue to cite inflation as their biggest problem. US inflation has remained relatively elevated, despite coming down since its 2022 highs. US inflation data for December will be released today.
• Producer prices moved higher in December, rising by 0.2%. The increase was driven by a rise in gasoline prices. Conversely, prices for machinery declined.

Optimism has increased with small businesses getting a bit more clarity on the future direction of US economic policies following the election. Small businesses are expecting better business conditions, which could be beneficial for overall economic growth. A healthy US economy tends to be constructive for Canada’s economy. However, the threat of tariffs, and how they might impact gross domestic product growth, weighs on Canada’s trade activity with the US. Given that tariffs appear likely, the question will become how Canada responds.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.