Recent data reveals a significant boost in small business optimism in the United States, reaching its highest level since October 2018. This encouraging trend is reflected in the National Federation of Independent Business (NFIB) December survey that indicated a strong increase in the small business optimism index, which jumped 3.4 points to 105.1.
This marks the second consecutive month the index surpassed the 51-year average of 98, edging past analysts’ expectations of a 102.1 reading noted by Bloomberg. Seven out of the ten components examined in the index saw increases, indicating a positive shift among small business owners, while only two components declined and one remained stable.
Concurrently, the uncertainty index decreased by 12 points to 86, showcasing a notable drop in concerns about the economic landscape. According to Bill Dunkelberg, Chief Economist at NFIB, this surge in optimism can be attributed to a renewed sense of certainty and hope surrounding the economic agenda of the incoming Trump administration.
He noted, "Expectations for economic growth, lower inflation, and positive business conditions have increased in anticipation of pro-business policies and legislation in the new year." With President-elect Donald Trump set to take office on January 20, small business owners are expressing growing confidence in the changing economic policies.
The NFIB survey further revealed that 20% of small business owners identified inflation as their most pressing issue, with this figure remaining unchanged from the previous month. Labor quality, although still a concern, now ranks slightly lower on their list of worries. The report highlighted a remarkable increase in the percentage of business owners predicting economic improvement, which surged by 16 points to a net 52%—the highest level observed since the fourth quarter of 1983.
Additionally, the proportion of owners who feel that now is a good time to expand their businesses rose to 20%, a peak not seen since February 2020. However, the survey also revealed some caution among small business owners. A net negative of 13% reported higher nominal sales in the last three months.
Meanwhile, the outlook for real sales volumes improved, with 22% of owners projecting an increase—up eight percentage points from January 2020. Compensation trends showed that 29% of owners reported raising their workers’ salaries in December, the lowest rate since March 2021. The sentiment remains cautious, as 24% plan to increase compensation in the next three months, a decline of four points from November. In related labor market developments, official data released on Friday indicated that the US economy added more jobs than anticipated in December, while the unemployment rate defied Wall Street forecasts by declining. According to Admir Kolaj, an economist at TD Economics, "The labor market continues to chug along at a healthy clip, and small businesses appear to echo this theme with plans to increase employment trending up recently.
That said, it remains to be seen if this will lead to a major improvement in job growth over the near term as not all indicators are singing to the same tune.".