Early this morning, the National Federation of Independent Business (NFIB) released its November survey for small business sentiment. As shown below, the headline Optimism Index surged by 8 points month-over-month for its biggest jump since 1980 and up to the highest level since June 2021.  The main catalyst for the surge in optimism was the election.  As we often discuss with this indicator, this release has increasingly been politically sensitive in recent election cycles. Republican administrations have tended to correlate with stronger small-business optimism and vice versa when Democrats have been in power.  That means that while the indicator is useful, there is a political caveat that needs to be acknowledged.
In the table below, we show readings for each category in the report both for the most recent month and the previous month, the month-over-month change, and how those rank in percentile terms versus all periods in the survey’s history since it began releasing on a monthly basis in 1986.  Under the hood, expectations for the economy to improve shared in seeing a record month-over-month gain, rising 41 points from -5 up to +36. Capital expenditure plans, expectations for higher real sales, and viewing now as a good time to expand were not far behind with some of the largest increases in their respective histories. Positive moves were observed far and wide with only one category declining on the month: credit availability.
As previously noted, the index for economic outlook saw a record increase rising an astonishing 41 points from a negative reading up to the highest since June 2020.
Given the strength in the economic outlook, the highest share of firms see now as a good time to expand since June 2021. While the reading is surging, it has plenty of ground to make up to return to levels seen during the last Trump administration.
Fortunately, the survey provides a detailed breakout into the reasons why firms are either positive or negative, and the results are perhaps the most clear sign of responding firms’ political biases. For those firms that did give a negative expansion outlook, economic conditions and political climate have been the two most commonly offered reasons in the past several years. However in November, in addition to fewer firms offering a negative outlook, fewer firms reported economic conditions or political climate as the culprit. For other categories, there was only a marginal uptick in financials & interest rates.  Conversely, for those that gave a positive expansion outlook, the highest percentage of firms pointed to the political climate for their optimism.
In reviewing the data, it may have become clear that a number of the categories that observed major improvements have the basis in answering a question of how a firm is feeling rather than how it is actually doing.  For example, while there was a six point increase in plans to increase capex, there was no change in actual capex spending.  In other words, there has been a divergence in the survey’s soft and hard data.

In the charts below, we have taken each category of the report (standardizing using a z-score) and averaged whether they are based on hard or soft data.  As shown, although November did see stronger hard data, the jump in soft data was much larger.  In other words, businesses did see improvements, but their expectations and feelings are much more rosy than more substantiated data may imply. Taking a spread of the two, soft data now leads hard data to the widest degree since the end of the last Trump administration.  Looking back historically, that’s normal.  On average, the spread has tended to be modestly positive (+0.07) during Republican administrations versus a firmly negative (-0.23) average reading when the Democratic party was in power.More By This Author:Efficient Market?Opposite Day To Start The Week The 10 Stocks Up More Than Bitcoin