Although economists expect Trump’s plans for new tariffs and an immigration crackdown to boost labor costs and reignite inflation, Wade said the details of those policies are unclear and so business owners haven’t been rattled by them.
Just a few months ago, many small firms were teetering, squeezed by labor costs that had surged due to pandemic-related worker shortages and consumer spending that was flattening after a post-COVID-19 burst. Meanwhile interest rates, including those for small business loans, spiked following the Federal Reserve’s flurry of rate hikes to fight inflation.
In October, the gap between small companies reporting lower versus higher sales the past three months was the largest since the depths of the pandemic in 2020. In November, that gap shrank by about two-thirds to the smallest since June. The seasonally adjusted data should filter out November’s annual rise in holiday sales.
Could an election spark such a dramatic turnabout for the nation’s entrepreneurs?
Ryan Sweet, chief U.S. economist of Oxford Economics, is skeptical. Small businesses generally prefer Republican administrations that are more likely to cut taxes and regulations, Sweet wrote in a note to clients. As a result, his research shows “that a Democratic president reduces confidence while a Republican boosts” it.
But that, he added, doesn’t necessarily translate into actual spending and hiring. “The partisan bias reinforces our view that it’s more important to watch what consumers and business do, rather than what they say,” Sweet wrote.
Taylor Bowley, an economist at Bank of America Institute, which studies consumer and small business behavior, places more stock in business perceptions.
“It’s not everything but it is something,” she said, noting their plans to hire and expand also haves ticked up based on the institute’s own survey.
“They’re expecting to put their money where their mouth is,” said Nicholas Tremper, an economist at Gusto, a payroll provider for small businesses.
Other forces are also coalescing to create a more hospitable environment for firm owners. Since September, the Fed has been cutting interest rates as inflation has eased. That has reduced the cost of loans and made banks more willing to lend to small enterprises, Bowley said, citing the institute’s data.
Meanwhile, wages and salaries grew 3.8% annually in the third quarter, down from 4.1% the prior quarter and 4.5% a year ago, according to the Bureau of Labor Statistics. That means slower-growing labor costs for small firms.
Rent hikes, another headache for small businesses, also have moderated to 6% annually in November from 11% in July and 20% in early 2023, Bank of America figures show.
At the same time, consumer spending has remained sturdy, growing at a robust 3.7% annual rate in the third quarter, after adjusting for inflation, and a solid 0.3% in November, according to government reports.
Sergio’s owner, Gazitua, said he has struggled the past couple of years because grocery store price increases have moderated even as restaurant tabs keep climbing due to high labor costs. That has coaxed more Americans to eat at home or order less profitable take-out meals, he said.
Several months ago, he was approached by a landlord offering a big rent discount for a space occupied by a restaurant that was delinquent on its lease payments. Gazitua said he weighed the offer but didn’t feel confident enough to approve the new eatery until Trump’s victory.
He said he also planned to turn a vacant rooftop area above one of his restaurants into a space for private events. But after the election, he decided instead to spend $250,000 to open a rooftop restaurant under a new brand.
Trump and a Republican Congress are expected to extend tax cuts passed during his first term that trimmed tax rates for small businesses, provided a 20% deduction and allowed immediate write-offs for investments, such as Gazitua’s new outlets.
Gazitua thinks the amount of the write-off could be stepped up next year, allowing him to use the tax savings to help finance the new restaurants.
“You have to be prepared for the opportunity,” he said.
Other business owners believe they’ll benefit from lighter regulation.
Tristan Hamberg, owner of Refined Painting Services in Gresham, Oregon, believes Trump’s vow to open more federal land to oil drilling will lower oil prices and his costs for oil-based paints, though analysts are skeptical the “drill, baby drill” strategy will reduce prices. Hamberg also thinks the Trump administration will ease constraints on the amount of gas paints can emit.
And he’s optimistic that tax cuts will spur sales among the higher-income households that drive his revenue growth.
“It’s more disposable income,” he said.
Figuring revenue will grow 20% next year, Hamberg plans to add two full-time employees to his staff of five and convert five part-timers to full-time status – a plan he said was solidified by the election results.
Alfredo Ortiz, CEO of the Job Creators Network, a right-leaning small business group, believes all it takes is increased confidence to nudge entrepreneurs into action.
“Once you change that mindset, (you)can spend again and invest again,” he said.
Other small firms are nervous about Trump’s policies.
Phoenix-based White Tie Productions, which provides audio-visual equipment and displays for corporate events, saw sales surge 15% this year as firms felt more comfortable staging in-person events following COVID-19, said company President Ross Snyder.
With Snyder projecting up to a 25% rise in business next year, he plans to add two or three employees to his staff of 15 in coming months.
But there’s a wrinkle.
White Tie buys much of its cameras, lighting fixtures and other equipment from Canada, Mexico and China – countries that Trump has threatened with tariffs of 10% to 25% as soon as his first day in office.
Snyder said he likely would pass along much of any cost increase to his customers, likely causing them to downsize the scale of events and reducing his revenue. He also would absorb part of the higher prices, narrowing his profits.
Reduced revenue or profits could force him to hold off on the new hires, Snyder said, adding that tariffs would be “a major concern.”
“We live in a worldwide economy,” he said.