U.S. NFIB Small Business Optimism Rises Again in December; Highest Level Since October 2018

The NFIB Small Business Optimism Index rose to 105.1 in December, the eighth m/m rise in nine months and the highest level since October 2018, after an 8.0-point rise to 101.7 in November, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the second straight month that the index was above the 51-year average of 98. The index, up from its recent low of 88.5 in March 2024 and 91.9 in December 2023, was also above a high of 102.5 in June 2021 and a high of 104.0 in October 2020. Seven of the 10 index components rose, two fell, and one was unchanged. The NFIB Small Business Uncertainty Index declined to 86 in December, the lowest level since June 2024, from 98 in November; however, it was well above its recent low of 65 in November 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months remained positive for the second consecutive month in the latest survey. The net balance of respondents expecting the economy to improve jumped to 52% in December, the seventh m/m rise in eight months and the highest level since March 2002, on top of a 41-point surge to 36% in November; it was significantly above a record low of -61% in June 2022. Expected real sales rose to a net 22% in December after an 18-point gain to 14% in November, posting the second successive positive reading and the highest level since January 2020. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, unchanged from November and registering the highest reading since June 2024. The latest result, however, was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays dipped to 27% in December following a six-point increase to 28% in November. These numbers were up from a low of 19% in September 2024 and a low of 19% in April 2023 but down from a high of 31% in October 2021. Plans to expand the business rose to 20% in December after an eight-point rise to 14% in November; the latest figure, up from a low of 2% in March 2023, registered the best reading since February 2020. Meanwhile, expected credit conditions increased to -2% in December, the highest reading since February 2020, from -5% in November; these readings were above a low of -11% in November 2023.

On the labor front, labor markets remained relatively tight. Forty-nine percent of respondents reported that qualified workers to fill job openings were hard to find in December, slightly up from 48% in November. These numbers were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 19% planned to increase employment in December, slightly up from 18% in November, but it was down from a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 35% reported positions not able to be filled in December, slightly down from 36% in November; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure was held at -26% in December and November, still a poor reading, following a one-point increase to -33% in October; these readings were below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices held at 24% in December and November after a one-point easing to 21% in October; these numbers were slightly down from 25% in December 2023 and well below a high of 66% in March 2022. The percentage planning to raise prices registered at 28% in December and November following a one-point increase to 26% in October; these figures were below 32% in December 2023 and a high of 52% in March 2022.

Wage inflation, while relatively high, eased somewhat in the December survey. A net 29% of respondents raised compensation during the last three months, down from 32% reported in the November survey and registering the lowest reading since March 2021. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 24% of firms planned to raise worker compensation in the next three months, down from an 11-month-high 28% reported in November; these numbers remained below a high of 30% in November 2023 and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 20% of NFIB members in December as the single most important problem. The December figure was unchanged from November and down from and a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in December, unchanged from November. Other concerns (in December vs. November) included taxes (15% vs. 14%), the cost of labor (11% vs 11%), and government requirements (8% vs. 8%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.