The best news about the job market no one is talking about

The stock market has trended upward since Election Day, stoked by optimism that President Donald Trump’s agenda will translate into stronger corporate earnings. While Wall Street may be having some second thoughts lately, the Trump bump seems to be taking hold on Main Street in the form of stronger hiring by bullish small and midsize employers.

The pace of hiring by large companies hasn’t changed much since the election, but smaller firms have shown a notable uptick in hiring, according to a Morgan Stanley (MS) study. It examined net monthly changes in employment among firms of different sizes (on a three-month rolling-average basis) relative to historical averages.

Morgan Stanley based its analysis on data from the ADP Research Institute, a division of payroll-processing giant ADP. This week, ADP reported that private sector employers added a stronger-than-expected 263,000 jobs in March, on a seasonally adjusted basis. Small and midsize companies led the way in job creation, generating more than 80 percent of all new private sector jobs last month.

“Small-business hiring may have lagged -- unusually so -- in this labor market recovery, but its animal spirts are certainly awake now,” said the Morgan Stanley report, which noted that small-business owners are feeling more upbeat lately, while the number of startup companies has also surged.

Since the presidential election, optimism among small-business owners has risen to levels not seen since 1983, a year that marked the start of a prolonged economic expansion, said William Dunkelberg, chief economist for the National Federation of Independent Business (NFIB). The trade group publishes a monthly small-business optimism index based on a survey of a random sample of its member firms.

Higher levels of optimism are starting to translate into stronger hiring and capital spending, said Dunkelberg. Manufacturers and construction companies are particularly upbeat, he said.

Why has hiring by small businesses lagged during the recovery? Consumer spending, which accounts for two-thirds of U.S. economic activity, was slow to bounce back, and that took a toll on many small businesses, explained Dunkelberg.

“The recovery was awful for small businesses in terms of sales growth,” he said.

Mr. Trump’s unexpected win in November has many feeling decidedly more upbeat, added Dunkelberg. That’s because they’re hopeful the administration will deliver on its promises to reform the tax code, roll back regulations and upgrade America’s infrastructure.

His vow to “repeal and replace” the Affordable Care Act is another cause for optimism. The cost of health insurance and complying with regulations have been among the biggest problems small businesses have faced in recent years, said Dunkelberg. 

Existing tax policy is another pain point for many small businesses, he added. Many want tax cuts and a simpler code, among other policy changes.

A win by “Hillary [Clinton] wouldn’t have been viewed as a change in the status quo, just more of the past eight years,” said Dunkelberg. 

Of course, what goes up must come down. The Trump euphoria on Main Street may eventually fade if the administration fails to deliver on its pro-business agenda. Last month’s collapse of the Republican-backed health insurance bill has undoubtedly given some supporters in the small-business community pause.

Not according to Dunkelberg. Many, he said, see it as just a temporary setback.