Business sentiment index

The business sentiment index is highly correlated with the performance of the US business sector. Generally, if confidence levels surpass an index value of 50.0, the economy is considered to be expanding, whereas confidence below 50.0 indicates a contraction. Recession worries heightened significantly in 2020, due to the economic effects of the COVID-19 pandemic. However, attitudes significantly rebounded in 2021 as the vaccine was deployed and lockdown mandates were lifted, enabling most economic activity to resume. Accordingly, business confidence increased after these initial changes amid pent-up demand for services, which will lead to an inflated business sentiment level of 60.6 in 2021.

In 2022, levels slightly eased due to surging inflation, which led to the Federal Reserve to aggressively raise interest rates. Additionally, the Russian invasion of Ukraine increased geopolitical tensions, which contributed to the decrease in business sentiment during the year. As a result of economic uncertainty, business sentiment levels decreased 11.6% to 53.5 during the year. Small businesses specifically suffered throughout 2022 and into 2023, primarily due to spiking levels of inflation and sudden interest rate hikes. Larger businesses were better able to adapt to increased costs.

Business sentiment continued to drop during 2023 as inflation and high interest rates continued to affect business owners. High operating costs continued to stress budgets during the year, which stem from prolonged periods of high interest rates. Despite these trends, consumer spending remained resilient, which prevented significant drops in business sentiment. However, during 2023, business sentiment still fell 12.1%. Business sentiment then returned to growth, rising 2.5% and an expected 0.9% in 2024 and 2025, respectfully. Falling interest rates offer businesses a chance to regain confidence and invest in delayed or new projects that were previously stalled because of high rates. Tariffs have slowed growth in 2025, as they raise costs and leave businesses uncertain while waiting for a clear, finalized policy from the United States. Companies will be particularly interested in whether these tariffs will heavily target countries like Canada and Mexico or if they will be less harsh than initially suggested. But, the Trump Administration has started deregulating the economy through executive orders to encourage domestic investments and boost manufacturing activity. This approach will reassure the business sector that government policies will at least somewhat align with their interests, potentially leading to a modest improvement in the economic index.