Bank of the West U.S. Outlook Report for November 14, 2014

  • by BPC Staff
  • on November 14, 2014

US Outlook Report: Are Small Businesses Joining the Expansion?

Fresh data from the National Federation of Independent Business (NFIB) and Senior Loan Officer Survey from the Federal Reserve add to the evidence that U.S. small businesses are finally joining the economic expansion.

The NFIB Small Business Optimism Index rose to 96.1 last month and continues to hold noticeably above its linear trend since 2008.  Small businesses comprise over 99 percent of all business establishments in the U.S., employing over half the labor force, according to U.S. Small Business Administration. Their rising optimism about the current and future state of their businesses could turbo charge U.S. capital spending and employment growth.

The most promising component in the October release is the sharp 4-point upturn in capital expenditure plans that could in turn lead to increased borrowing by small businesses.

Part of the recovery in small business optimism is likely being driven by a more resilient consumer. A rising share of commercial banks were reporting in the fourth quarter that consumer demand for auto loans strengthened, while “modest net percentages” also reported strengthening demand for credit cards and other consumer loans

The improving labor market is bolstering consumer resilience. The job openings, layoffs, turnovers and separations (JOLTS) data released this week by the Bureau of Labor Statistics revealed gradual improvement in the U.S. labor market continues. The hiring rate improved to 3.6% percent from 3.4% in August. Employees are also quitting more – a sign they are becoming more confident about finding better jobs elsewhere.

In short, as consumer and business balance sheets continue to improve, their demand for credit and spending should improve, and banks will be more willing to ease their lending standards across a broader range of loan products.

To find out more, check out  this week’s U.S. Outlook Report.