We now may be turning a corner.
The most recent University of Michigan consumer sentiment index rose to 70.1 in September, up for the second consecutive month and 3% above last year. Even more importantly, the consumer expectations index for the coming year was up for the fourth consecutive month and is now 13% higher than last year. This reflects the belief that the Fed will continue to decrease interest rates in the coming year, which will lead to less expensive car loans, mortgages and credit card debt. Of note, these more optimistic trends are consistent across age, income and education levels.
Similarly, the U.S. Chamber of Commerce index for Small Business confidence also increased in Q3 2024, up 3% year over year to 71.2. Seventy-three percent of owners expect revenue to increase next year, the highest confidence since 2017. 44% expect to add to their staffing as well. That said, 56% of owners cite inflation as their number one challenge. Let’s face it, the rate of inflation has been coming down, but stuff still costs more over the past couple of years.
These are good signs that the economy can, in fact, keep growing and that a recession is less and less likely in the coming year. Will there be continued sparring about the economy between political parties, you bet. The job market, wage growth and costs for housing, food and energy are all still top concerns. Don’t rush out to get champagne yet. But there are glimmers of positive news, which we have not seen in a while.
A caveat, of course, is that surveys are just a snapshot at a point in time. But since both the consumer sentiment and small business confidence data have been around for a long time, their numbers tend to be predictive with a reasonable degree of certainty. You may be seeing somewhat different trends for your business, as there are regional differences at play.
You will be going through the 2025 annual budgeting exercise in the coming weeks, so take the pulse of your leadership team and your top customers to see how they are feeling, and what their level of optimism is. Their honest assessment of market conditions and future demand are the best indicators you can get, as they are closest to the real action.
Implications
As you approach building your business plan, it may be prudent to create three separate scenarios: an expected case, a best-case scenario and a downside scenario. Each one should have its own revenue, spending, pricing and profit projections. Most of our clients tend to land on going forward with the expected case, while being prepared for the lower growth scenario. The upside case is tempting, but we advise having less risk in your operating budget. Then you can step on the gas if things start to catch fire or fall your way.
At Damen Jackson, we have helped clients navigate in good times and bad. Regardless of the economy, we put a premium on prudent planning and smart decisions. We have the benefit of over 25 years of working with almost 800 clients to help your brand shine no matter what. Our experienced team is there to augment the know-how of your leadership team, stimulate productive debate, put hard working plans in place, and grow your business.
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