Trump is juicing business confidence

Business confidence is booming since Donald Trump’s victory in the presidential race, with more companies planning to step up hiring.

But their capital spending plans have been roughly stable, indicating many businesses aren't prepared to commit significant funds to new equipment or buildings until they’re assured that Trump’s blueprint will be passed by Congress.

Small business optimism, in particular, soared after the election, according to  the National Federation of Independent Business’s November survey. Its overall optimism index jumped to 102.4 post-election, up from the 95.4 that was based on responses received before the vote. The latter was little changed from October’s 94.9.

After Trump’s win, 38% more small firms expected business conditions to be better in six months than worse. Before the election, 6% more of the respondents expected conditions to be worse.

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Similarly, in the following three months, 23% more small businesses expect to add to their staffs rather than lay off workers, post-election responses show, up from 9% before the vote.

And 20% more of those surveyed after the election expected sales to increase the next three months than decrease, up from just 4% more pre-election.

The incoming administration “has a very different approach to regulation and taxes” than the Obama administration, says NFIB Chief Economist William Dunkelberg. “It’s very clear that small businesses were very unhappy with the current” administration.

Trump has vowed to cut taxes, for businesses and individuals, eliminate regulations, increase infrastructure spending by as much as $1 trillion and impose steep tariffs on imports to narrow the nation’s trade gap.

Jim Jacobs, owner of Focus Insite, a market research firm, says he plans to add four workers to his current staff of three early next year. The company, based in West Chester, Penn., has been outsourcing much of its work overseas to save money, but adding full-time workers will improve productivity in the long run, he says.

“We were scared to do that until we saw the election results,” he says. He  believes Trump and Congress will cut his taxes and ease regulations, particularly health coverage requirements under the Affordable Care Act.

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Vlad Molchadski, CEO of Dallas-based BizTraffic, a digital marketing company, also plans to hire four workers early next year, nearly doubling his staff. Besides citing lower taxes and fewer regulations, he says increased infrastructure spending will mean faster growth for real estate investment trusts, the biggest single sector in his customer portfolio. If Democrat Hillary Clinton had won the election, “The approach would have been more cautious” as Molchadski monitored sales growth next year, he says.

Yet only about a quarter of small businesses plan a capital expenditure in the next three to six months, a share that was largely unchanged since the election, NFIB’s survey shows. The Business Roundtable’s survey of CEOs also showed capital spending plans pulling back.

“It shows they’re willing to bet on the short term but not the long term,” says Diane Swonk, head of DS Economics. New staffers can be laid off with little financial fallout, in contrast to capital investments that can cost millions of dollars.

Besides awaiting Congress’s response to Trump’s plan, some businesses are also concerned about fallout from any constraints Trump places on trade.