Small Business Economic Outlook in 2024
As 2024 unfolds, small business owners are gearing up for the new year with a blend of optimism and caution. With more than 33 million small businesses employing over 61 million Americans, these enterprises are often the first to feel the impact of economic changes. Despite the economy steering clear of a recession last year, the intricate interplay of economic conditions, political developments, and technological advances creates a nuanced landscape for small businesses for the year ahead. Navigating this complex and uncertain environment, their sentiment on the economy provides valuable insights into the economic outlook.
Sentiment Inching Up
With 2023 behind us, surveys of small business owners are rolling in, offering a glimpse into the industry’s current landscape. According to the December 2023 Report from the National Federation of Independent Business (NFIB), the small business optimism index increased to 91.9 in December, up from November’s 90.6. Even though there has been a small uptick, it remains below the 50-year average of 98 for the past two years. The NFIB report also highlights that small business owners have optimistic expectations for business conditions in 2024. Owners also shared with NFIB a surge in sales over the last three months, boosting profits.
BizBuySell’s quarterly Insight Report monitors the health of the U.S. small business economy. Each quarter, BizBuySell assesses sales and listing prices of small businesses nationwide, drawing insights from around 50,000 businesses for sale and those recently sold. Additionally, the report conducts surveys with small business professionals to gauge economic indicators for the small business transaction market. In anticipation of the new year, when small business owners were asked to describe their outlook in one word, over half expressed a positive sentiment. The predominant responses included hopeful, optimism, growth, good, and better. As business owners set their sights on a successful 2024, the task of navigating the challenges and uncertainties that characterized the 2023 economic headlines will be paramount.
The Challenges Ahead
Despite a tilt in optimism for the health of the small business market in 2024, there are a variety of market conditions that small business owners are watching closely to assess their impact on business conditions. In addition to the perennial conditions of labor market conditions, supply chain management, and inflation concerns, the fact that 2024 is an election year adds an extra layer of uncertainty.
Continuing challenges in the labor market persist, particularly with the minimum wage hikes scheduled for this year, affecting 22 states and 39 cities and counties, and impacting over 9 million employees. Despite rising wages, the labor market has demonstrated resilience, surpassing economist expectations. While the Bureau of Labor Statistics reported the addition of 216,000 jobs added in December, there are indications that the job market is showing signs of cooling. As final numbers await revisions, the sectors contributing to 80% of jobs added to nonfarm payrolls include education, healthcare, and government. With 44% of business owners expressing intentions to hire more employees in 2024, according to the Insight Report, a cooling labor market might offer advantages for small business owners searching for qualified candidates.
Inflation remains a top concern for small businesses. In 2022-2023, the Federal Reserve raised interest rates 11 times in their effort to curb inflation. Recent data suggests a continued slowdown in inflation as 2023 concluded, with the Consumer Price Index seeing the core index dropping to 3.9%, the first time below 4% since May 2021. As inflation appears to follow a more normal pace in the coming year, all eyes will be focused on the Fed's moves to begin lowering interest rates.
Economic conditions not only impact day-to-day business operations but also impact growth trajectories and valuations. The value of a business, even when well-managed, can rise or fall with broader economic conditions. While certain aspects of the economic impact on business valuation can be managed, others remain beyond the control business owners. Additionally, recent disruptions in the Red Sea have heightened concerns about supply chain vulnerabilities, further complicating the landscape for small businesses. The intersection of an election year and global disruptions underscores the need for resilience and adaptive strategies in the ever-evolving small business environment.