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America's small businesses are still extremely optimistic about Trump

Myles Udland
Markets Reporter

America’s small business owners are still hugely bullish on their economic prospects under President Donald Trump.

On Tuesday, the National Federation of Independent Business released its latest small business optimism index, which came in at 105.3, slightly below last month’s reading but still near its best levels in a decade.

“The Index of Small Business Optimism fell 0.6 points to 105.3, sustaining the remarkable surge in optimism that started November 9, 2016, the day after the election,” the report said.

And as Bespoke Investment Group wrote in a note on Tuesday, “We think it’s fair to say small businesses are extremely optimistic.”

Inside the report, it’s clear small businesses are perhaps more bullish on a more lax regulatory regime from the Trump administration than any other policy change.

“For the first time in a long time, Taxes and Government Red Tape are not the two top problems cited,” Bespoke wrote on Tuesday.

In February, 15% of small businesses cited government red tape — read: regulations — as their top concern, the lowest since June 2011.

Regulations are decreasingly the biggest problem facing America’s small businesses. (Source: Bespoke Investment Group)

In late January, Trump signed an executive order which said that for every one new regulation put in place by the government, two would be repealed.

“This will be the biggest such act that our country has ever seen. There will be regulation, there will be control, but it will be normalized control,” Trump said at the time.

And while markets have largely focused on Trump’s campaign agenda of cutting taxes, repealing and replacing Obamacare, and investing in infrastructure, slashing regulations is something the President can act more quickly and decisively on given that no haggling with Congress is required.

In a report last month, Kelly Bogdanov, an analyst at RBC Wealth Management, argued that, “In our view, a presidential initiative that could impact both GDP and profits should be at the forefront of investors’ minds—deregulation.”

RBC’s report adds that given the variety of impacts cutting regulations would likely have across sectors, there have been no comprehensive overviews of how much loosening regulations would help S&P 500 earnings. This doesn’t, in RBC’s view, mean that the potential has been appropriately realized.

“While optimism about regulatory relief has helped lift the market since the election,” the firm wrote, “we don’t think the full impact of a well-executed deregulation program over multiple years is anywhere close to being fully factored into the U.S. stock market.”

Source: RBC Wealth Management

Outside of regulations, the NFIB’s report still indicates there is some translation from optimism into actual action to be done for the economy to see the full benefits of a more bullish small business sector.

“Sales expectations (which had been either negative or barely positive for the entire Obama Presidency) are now basically ‘normal,'” writes Bespoke Investment Group.

“Expansion intensions are elevated but at levels where they’ve stuck during the peaks of the last two economic cycles. Finally, the outlook for General Business Conditions is at a flat-out unsustainable level; prior trips this high didn’t last long.”

Small business optimism has spiked since the election. (Source: NFIB)

“Optimism has not faded, but the enthusiasm has yet to be translated into an equally impressive increase in spending and hiring,” the NFIB said in its report.

“This will require progress on the agenda that business owners voted for.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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