The National Federation of Independent Business’ (NFIB) Small Business Optimism Index rose by 3.4 points in December to 105.1, the second consecutive month above the 51-year average of 98 and the highest reading since October 2018.
Of the 10 Optimism Index components, seven increased, two decreased, and one was unchanged. The Uncertainty Index declined 12 points in December to 86.
“Optimism on Main Street continues to grow with the improved economic outlook following the election,” NFIB Chief Economist Bill Dunkelberg said in a release. “Small-business owners feel more certain and hopeful about the economic agenda of the new administration. Expectations for economic growth, lower inflation, and positive business conditions have increased in anticipation of pro-business policies and legislation in the new year.”
Key findings include:
- The net share of owners expecting the economy to improve rose 16 points from November to a net 52 percent (seasonally adjusted), the highest since the fourth quarter of 1983.
- The share of small-business owners believing it is a good time to expand their business rose six points to 20 percent, seasonally adjusted. This is the highest reading since February 2020.
- The net percent of owners expecting higher real sales volumes rose eight points to a net 22 percent (seasonally adjusted), the highest reading since January 2020.
- A net 6 percent (seasonally adjusted) of owners plan inventory investment in the coming months, up five points from November and the highest reading since December 2021.
- Seasonally adjusted, a net 29 percent reported raising compensation, down three points from November and the lowest reading since March 2021.
- A net 1 percent of owners reported paying a higher rate on their most recent loan, down four points from November and the lowest reading since September 2021.
- Twenty percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), unchanged from November and leading labor quality as the top issue by one point.
As reported in NFIB’s monthly jobs report, a seasonally adjusted 35 percent of all small-business owners reported job openings they could not fill in December, down one point from November. Of the 55 percent of owners hiring or trying to hire in December, 89 percent reported few or no qualified applicants for the positions they were trying to fill.
Fifty-six percent of owners reported capital outlays in the last six months, up two points from November. Of those making expenditures, 37 percent reported spending on new equipment, 24 percent acquired vehicles, and 16 percent improved or expanded facilities. Eleven percent spent money on new fixtures and furniture and 7 percent acquired new buildings or land for expansion. Twenty-seven percent (seasonally adjusted) plan capital outlays in the next six months, down one point from November’s highest reading since January 2022.
A net negative 13 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from November. The net percent of owners expecting higher real sales volumes rose eight points to a net 22 percent (seasonally adjusted), the highest reading since January 2020.
The net percent of owners reporting inventory gains rose seven points to a net 0 percent, seasonally adjusted. Not seasonally adjusted, 13 percent reported increases in stocks and 14 percent reported reductions.
A net negative 1 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in December, up one point from November. A net 6 percent (seasonally adjusted) of owners plan inventory investment in the coming months, up five points from November and the highest reading since December 2021.
The net percent of owners raising average selling prices was unchanged from November at a net 24 percent seasonally adjusted. Twenty percent of owners reported that inflation was their single most important problem in operating their business, unchanged from November and leading labor quality as the top issue by one point. Unadjusted, 11 percent reported lower average selling prices and 31 percent reported higher average prices.
Price hikes were the most frequent in the finance (56 percent higher, 15 percent lower), retail 38 percent higher, 6 percent lower), construction (30 percent higher, 9 percent lower), and transportation (30 percent higher, 9 percent lower) sectors. Seasonally adjusted, a net 28 percent plan price hikes in December.
Seasonally adjusted, a net 29 percent reported raising compensation, down three points from November and the lowest reading since March 2021. A seasonally adjusted net 24 percent plan to raise compensation in the next three months, down four points from November.
The percent of small-business owners reporting labor quality as the single most important problem for business was unchanged from November at 19 percent. Labor costs reported as the single most important problem for business owners was also unchanged from November at 11 percent, only two points below the highest reading of 13 percent reached in December 2021.
The frequency of reports of positive profit trends was a net negative 26 percent (seasonally adjusted), unchanged from November. Among owners reporting lower profits, 35 percent blamed weaker sales, 13 percent cited usual seasonal change, 12 percent blamed the rise in the cost of materials, and 11 percent cited labor costs. For owners reporting higher profits, 51 percent credited sales volumes, 22 percent cited usual seasonal change, and 7 percent cited higher selling prices.
Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-four percent reported all credit needs met and 65 percent said they were not interested in a loan. A net 4 percent reported their last loan was harder to get than in previous attempts. Four percent of owners reported that financing was their top business problem in December, down one point from November.