The National Federation of Independent Business (NFIB) announced today that its Small Business Optimism Index rose to 105.1 in December, marking a 3.4-point increase and the highest level since October 2018. The December reading is the second consecutive month above the 51-year average of 98, reflecting growing confidence among small business owners following November’s election results.
“Optimism on Main Street continues to grow with the improved economic outlook following the election,” said NFIB Chief Economist Bill Dunkelberg. “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.”
The NFIB reported significant shifts in key indicators:
- Economic expectations: The net percentage of owners expecting the economy to improve rose 16 points to 52%, the highest since the fourth quarter of 1983.
- Expansion plans: The percentage of owners believing it is a good time to expand rose six points to 20%, the highest since February 2020.
- Sales outlook: The net percentage of owners expecting higher real sales volumes increased by eight points to 22%, the highest since January 2020.
Despite the optimism, small business owners continue to face challenges. Inflation remains the top concern, with 20% of owners citing it as their most significant issue, followed by labor quality at 19%. A seasonally adjusted 35% of owners reported unfilled job openings in December, with 89% of those hiring saying they found few or no qualified applicants.
Compensation trends reflect these ongoing challenges:
- A net 29% reported raising compensation, down three points from November and the lowest level since March 2021.
- A net 24% plan to raise compensation in the next three months, a four-point decrease from the prior month.
The survey showed mixed results for profitability. A net negative 26% of owners reported positive profit trends, unchanged from November. Among those reporting lower profits, weaker sales, rising material costs, and labor expenses were the main factors.
Capital expenditures were up slightly, with 56% of owners reporting outlays in the past six months, including investments in equipment (37%), vehicles (24%), and facility improvements (16%). However, plans for future capital investments fell by one point to 27%, following November’s high since January 2022.
Inventory management showed improvement, with a net 6% planning inventory investments in the coming months, the highest reading since December 2021. Price adjustments varied by sector:
- Retail: 38% raised prices, 6% lowered them.
- Construction: 30% raised prices, 9% lowered them.
- Transportation: 30% raised prices, 9% lowered them.
A net 24% of owners reported raising average selling prices, unchanged from November, with a net 28% planning price hikes in December.
Credit access remains stable for most small business owners. In December, 24% reported all credit needs were met, and 65% indicated no interest in borrowing. Only 2% reported unsatisfied borrowing needs, and 4% cited financing as their top problem.
The NFIB’s December survey reflects a significant rise in confidence among small business owners, driven by improved economic expectations and optimism about pro-business policies. However, inflation and labor challenges remain pressing concerns as Main Street businesses navigate the evolving economic landscape.
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