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Why America's small manufacturers are becoming more pessimistic

Sarah A. Smith
Segment Producer/Booker

Confidence is soaring among small business owners up and down Main Street this quarter despite economic uncertainty and the ongoing U.S.-China trade war. But one group of small business owners is becoming more pessimistic about America’s economy — small manufacturers.

The Small Business Index reached 71.3 in 2019 Q4, the highest score since its inception in 2017. The latest data, compiled by MetLife and the U.S. Chamber of Commerce, indicates that employers are experiencing record levels of confidence about their businesses and financial future overall.  

Of the 1,000 employers surveyed, 59% had a positive outlook on their local economies, a three percentage point increase up from Q3. Small business owners are not only confident in their communities’ finances — more than half (57%) also believe that the U.S. economy is in good health. 

“There is optimism overall on Main Street, but you have to break down the numbers a little bit,” Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, told Yahoo Finance. 

Bradley says manufacturing is “one of the most disappointing aspects” of the latest quarterly report. Small manufacturers’ confidence has slumped 11 points over the last two quarters due to heightened pessimism about the national economy. 

“We think that that's primarily driven by some of these trade concerns,” said Bradley. “A lot of the tariffs to date have been on intermediate goods, things that U.S. manufacturers input to make finished products. That's having a real drag on the manufacturing sector.”

Workers in a small light industrial furniture factory specialising in wood joinery and carpentry

Despite political volatility and unrelenting tension between the U.S. and China, the trade war hasn't largely impacted small businesses, at least so far, according to Bradley. However, he recognizes the severity of the fast approaching Dec. 15 deadline and the impact new tariffs could have on businesses, as the next round would be directly targeting consumer goods.  

“Small businesses are one of the ones who are most acutely impacted when you have a tariff increase,” said Bradley. “It's a cost that’s very difficult for them to pass along to consumers. They already operate at very thin margins.”

Recent data however, is painting a better picture when it comes to the U.S. economy. The final reading of the University of Michigan’s Consumer Sentiment Index in November was 96.8, well above October’s level of 95.5. Bradley also points to low unemployment and increased wage growth.

“The American consumer is strong and somewhat resilient, so they can absorb some of the impact from these new tariffs,” said Bradley. “But there's no question it still has a negative impact, particularly on these Main Street businesses that we're concerned about.”

“At the end of the day, imposing new additional tariffs like those proposed on [December] 15th would end up hurting American small businesses and consumers,” said Bradley.

Sarah Smith is a Segment Producer/Booker at Yahoo Finance. Follow her on Twitter @sarahasmith

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