A warning sign that small businesses may not be so optimistic after all

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(This post originally appeared on The Washington Post)

Since Donald Trump’s election, small business optimism has soared. Corporate surveys have, again and again, reported a new sense of buoyancy among their small business respondents. The National Federation of Independent Businesses registered historic increases in its monthly optimism index. The stock market is up and so are projections by the Federal Reserve and International Monetary Fund.  Many in the business community are cheerfully expecting renewed growth, lower taxes, more government spending, a reduction in health expenses and overall prosperity.

Except they’re not betting on it.  Not just yet.

We know this because the Thomson Reuters/PayNet Small Business Lending Index fell in January. In fact, it fell to its lowest level in three months. The index is based on real-time loan information, such as originations and delinquencies, from more than 325 leading U.S. lenders.

This is a concern. According to Reuters, movements in the index typically correspond with changes in gross domestic product growth a quarter or two ahead. When the index is rising it provides evidence that more business owners are borrowing. They are expanding. They need more capital for investments. They require more funds to hire additional people. More importantly, it means they are willing to take more risks. They are betting on the future.

This is important because most of the business owners I know are not big risk takers. They are mostly risk-avoiders. They invest when they are more certain than not of a good return on investment. The president has been saying a lot of big things and making a lot of promises. That’s given reason for many to feel optimistic about the future. But for most business people, actions speak louder than words.

The decline in this index says everything: When small business sees that action, then they’ll take action. That’s when borrowing will increase and investments will be made. Optimism is nice, but it doesn’t pay the bills.


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