Since the COVID-19 pandemic, Sergio’s Family Restaurants, a 50-year-old South Florida institution, has struggled to turn a profit at its six Cuban restaurants.
Americans put to the test inflation cut off their discretionary spendingand restaurants, in particular, took it on the chin.
“There has been a lot of pessimism,” said Sergio president Carlos Gazitua.
The chain, it said, barely broke even in the first half of 2024 and lost money in the July-September quarter as sales fell from a year earlier.
Then, in early November, Donald Trump won the presidential race.
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Since then, revenue has jumped 10% to 15% each week from the previous year, capped by a 25% spike the week before Christmas, Gazitua said. Election-related uncertainty, which dampened spending, gave way to optimism that Trump would cut taxes, giving citizens more spending money, Gazitua believes.
Gazitua was also boosted by the prospect of lower taxes and fewer regulations for his business. Recently, he decided to open two restaurants next year, his first new outlets in a decade, projects that will cost $2 million and add 100 employees.
“The elections gave us an opportunity to move forward,” he said. “I don’t think we would have done it” otherwise.
Since Trump’s victory, small business confidence has soared, along with their plans to accelerate hiring and investment, surveys show. If these plans come to fruition, they could support a U.S. economy facing headwinds. Trump’s plans impose drastic tariffs on imports and expel millions of people immigrants lacking permanent legal status.
Businesses with fewer than 500 employees account for nearly half of U.S. jobs and most of the job creation, according to the National Federation of Independent Business and the Small Business Administration.
Is business confidence high today?
In November, small business optimism jumped 8.5% to its highest level since June 2021 (from 93.7 to 101.7) and surpassed the 50-year average after remaining below that benchmark for nearly three years, according to the NFIB’s monthly survey. The share of companies planning to hire, make equipment purchases and expand also reached a three-year high.
“The election was a huge sigh of relief,” said Holly Wade, director of the NFIB Research Center. “The fear of massive tax increases and continued regulatory environment is truly worrying. They desperately needed a change of direction and they got it.
Although economists expect Trump’s plans for new tariffs and an immigration crackdown to raise labor costs and reignite inflation, Wade said the details of those policies are not clear and therefore business owners have not been shaken by it.
Are small businesses struggling in 2024?
Just a few months ago, many small businesses were struggling, crushed by labor costs that had skyrocketed due to the pandemic-related labor shortage and by spending consumption which flattened after the post-COVID-19 crisis. Meanwhile, interest rates, including those on small business loans, have climbed following the The Federal Reserve a wave of rate hikes to fight inflation.
In October, the gap between small businesses reporting declining versus increasing sales over the past three months was the largest since the depths of the pandemic in 2020. In November, that gap widened. is reduced by about two-thirds to the smallest since June. The seasonally adjusted data is expected to filter out the annual surge in holiday sales in November.
Could an election trigger such a dramatic turnaround for the country’s entrepreneurs?
Ryan Sweet, chief U.S. economist at Oxford Economics, is skeptical. Small businesses generally prefer Republican administrations that are more likely to cut taxes and regulations, Sweet wrote in a note to clients. As a result, his research shows “that a Democratic president reduces trust while a Republican increases it.”
But that, he added, doesn’t necessarily translate into actual spending and hiring. “Partisan bias reinforces our view that it is more important to observe what consumers and businesses do than what they say,” Sweet wrote.
Taylor Bowley, an economist at the Bank of America Institute who studies consumer and small business behavior, places more emphasis on corporate perceptions.
“It’s not everything, but it’s something,” she said, noting that their hiring and expansion plans also turned out to be positive based on the institute’s own survey.
“They expect to walk the talk,” said Nicholas Tremper, an economist at Gusto, a provider of payroll services for small businesses.
Should interest rates fall?
Other forces are also coming together to create a more hospitable environment for business owners. Since September, the Fed has cut interest rates as inflation slowed. That lowered the cost of lending and made banks more willing to lend to small businesses, Bowley said, citing the institute’s data.
Meanwhile, wages and salaries rose 3.8% annually in the third quarter, compared to 4.1% the previous quarter and 4.5% a year ago, according to the Bureau of Labor Statistics. This means slower growth in labor costs for small businesses.
Rent increases, another headache for small businesses, were also moderate at 6% annually in November, compared with 11% in July and 20% at the start of 2023, according to Bank of America figures.
How are consumer spending evolving?
At the same time, consumer spending remained robust, growing at a robust annual rate of 3.7% in the third quarter, after adjusting for inflation, and a solid 0.3% in November, according to reports of the government.
Sergio’s owner Gazitua said he has struggled in recent years because price increases at grocery stores have moderated, even as restaurant bills continue to climb due to labor costs. high work. That prompted more Americans to eat at home or order less profitable takeout, he said.
Several months ago, he was approached by a landlord who offered him a significant reduction on the rent for a space occupied by a restaurant that was behind on its rent payments. Gazitua said he weighed the offer but didn’t feel confident enough to approve the new restaurant until after Trump’s victory.
He said he also plans to turn a vacant rooftop above one of his restaurants into a space for private events. But after the election, he decided to spend $250,000 to open a rooftop restaurant under a new brand.
Trump and a Republican Congress are expected to extend the tax cuts passed during his first term, which reduced small business tax rates, provided a 20% deduction and allowed immediate write-offs for investments, such as new Gazitua points of sale.
Gazitua believes the depreciation amount could be increased next year, which would allow it to use the tax savings to finance the new restaurants.
“You have to be ready to seize this opportunity,” he said.
Other business owners believe they will benefit from lighter regulations.
Tristan Hamberg, owner of Refined Painting Services in Gresham, Oregon, believes Trump’s promise to open more federal lands to oil drilling will lower oil prices and its costs for oil-based paints. analysts are skeptical the “drill, baby drill” strategy will drive prices down. Hamberg also believes the Trump administration will ease constraints on the amount of gas paints can emit.
And he is optimistic that the tax cuts will boost sales among higher-income households, which are driving his income growth.
“It’s more disposable income,” he said.
Estimating that revenue will increase 20% next year, Hamberg plans to add two full-time employees to his staff of five and convert five part-time employees to full-time status – a plan he says has was solidified by the election results.
Alfredo Ortiz, CEO of Job Creators Network, a right-leaning small business group, says all it takes is increased confidence to spur entrepreneurs into action.
“Once you change that mindset, (you) can spend again and invest again,” he said.
Other small businesses are nervous about Trump’s policies.
Customs tariffs constitute “a major concern”
Phoenix-based White Tie Productions, which provides audiovisual equipment and displays for corporate events, saw sales increase 15% this year as companies feel more comfortable hosting in-person events after COVID-19, said company president Ross Snyder.
While Snyder expects his business to increase by 25 percent next year, he expects to add two or three employees to his staff of 15 in the coming months.
But there is a problem.
White Tie sources much of its cameras, fixtures and other equipment from Canada, Mexico and China — countries that Trump threatened with tariffs of 10 to 25 percent on his first day in office.
Snyder said he would likely pass on a large portion of any cost increases to his customers, which would likely cause them to scale back events and reduce his revenue. It would also absorb some of the price rise, reducing its profits.
A drop in revenue or profits could force it to delay new hires, Snyder said, adding that tariffs would be “a major concern.”
“We live in a global economy,” he said.