The National Federation of Independent Business (NFIB) reported a significant rise in its Small Business Optimism Index for December, climbing 3.4 points to 105.1 as President-elect Trump prepares for inauguration.
This marks the second consecutive month the index has remained above its 51-year average of 98 and the highest reading since October 2018. Seven of the index’s 10 components showed increases, while two declined, and one remained unchanged. The Uncertainty Index also fell sharply, dropping 12 points to 86.
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“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.”
Key Highlights from the Report
- Economic Growth Expectations: The net percentage of business owners expecting the economy to improve jumped 16 points to 52%, the highest level since the fourth quarter of 1983.
- Expansion Plans: The percentage of owners believing it is a good time to expand their business rose six points to 20%, the highest since February 2020.
- Sales Outlook: A net 22% of owners anticipate higher real sales volumes, an eight-point increase and the best reading since January 2020.
- Inventory Investment: A net 6% of owners plan to invest in inventory in the coming months, the highest reading since December 2021.
- Compensation Trends: A net 29% of owners reported raising compensation, though this figure is down three points from November, marking the lowest level since March 2021.
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Despite the optimism, small businesses still face significant hurdles:
- Inflation: Twenty percent of owners cited inflation as their top issue, unchanged from November and the leading concern ahead of labor quality.
- Labor Shortages: Nineteen percent of respondents reported labor quality as their primary challenge, reflecting ongoing difficulties in finding qualified workers. Thirty-five percent of owners reported job openings they could not fill in December.
- Profit Trends: The frequency of positive profit reports remained unchanged at a net negative 26%, with weaker sales, seasonal changes, and rising material and labor costs cited as the main culprits.
Price hikes were most common in the finance, retail, construction, and transportation sectors, with a net 28% of business owners planning price increases in December. Capital expenditures were on the rise, with 56% of owners reporting outlays over the past six months, a two-point increase from November.
Access to credit remained stable, with 24% of respondents reporting all credit needs met and only 2% indicating unmet borrowing needs. Financing ranked as the top business problem for just 4% of owners, a slight decline from the previous month.
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The report underscores the resilience of small businesses as they prepare for an anticipated pro-business legislative agenda under the incoming administration.
With expectations for economic growth, easing inflation, and improvements in the business environment, the outlook for Main Street remains positive.
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