Small Business Optimism Rises Amid Coronavirus Fears: 5 Picks
Zacks Investment Research | Feb 11, 2020 08:06PM ET
Small business organizations’ bounced back in January following a setback in the prior month. The outbreak of deadly coronavirus in China, concerns about slowing U.S. and global economy, and geopolitical concerns failed to dampen the confidence of small business owners.
Small Businesses Bounce Back in January
On Feb 11, the National Federation of Independent Business (NFIB) reported that the NFIB Small Business Optimism Index rose to 104.3 in July from 102.7 in December. New job creation jumped in January as evident from an average addition of 0.49 workers per firm — the highest level since March 2019. Small business owners remained confident about recruiting more manpower, raising wages and capital spending to expand businesses.
The optimism regarding small businesses remains near an all-time high albeit a slowing U.S. economy. While optimism remains at historically high levels, the January figure reversed the loss posted in December, with six of the total 10 survey components increasing, two components declining and two remaining unchanged. Both capital spending and plans to order new inventories advanced in January.
Small Businesses Are Vital
Small corporates create a significant amount of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.
Moreover, small companies are major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses more often than not form a vital cog in corporate America's customer base.
Domestic-Focused Nature of Small Businesses
In fact, owing to their predominantly domestic-focused business strategy, small business organizations are generally immune to any external shocks like the outbreak of the coronavirus. This feature helps small-cap stocks to outperform the broader market defying extreme volatility.
According to the NFIB chief economist William Dunkelberg, “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”
Meanwhile, several recently released economic data reaffirmed the strength of the U.S. economy. A robust labor market with historically low-level of unemployment and growing wage rate, continuous growth of service-centric industries and likely rebound of manufacturing industries will pave the way creating more demand for small business operators. Further, soaring consumer confidence, indicating strong consumer spending, which constitutes 70% of the U.S. GDP will add to the demand.
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