NFIB Small Business Optimism Rose in December

Index increases 7.4 points to 105.8 for the month.

The NFIB Small Business Optimism Index rose 7.4 points in December to 105.8, its highest level since 2004, according to the NFIB Small Business Economic Trends Report.

“We haven’t seen numbers like this in a long time,” said NFIB President and CEO Juanita Duggan. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy.”

Leading the charge was “Expect Better Business Conditions,” which shot up from a net 12 percent in November to a net 50 percent last month – a 38-point jump.

“Business owners who expect better business conditions accounted for 48 percent of the overall increase,” said NFIB Chief Economist Bill Dunkelberg. “The December results confirm the sharp increase that we reported immediately after the election.”

The other two big movers in the survey, “Sales Expectations” and “Good Time to Expand,” jumped by 20 percentage points and 12 percentage points, respectively.

“This is the second consecutive month in which small business owners reported a much brighter outlook for the economy and higher expectations for their businesses,” said Dunkelberg. “In this month’s report, we are also finding evidence that higher optimism is leading to increased business activity, such as capital investment.”

Sixty-three percent of respondents made capital outlays, an eight-point increase over November. Also, the net percent of owners reporting inventory gains increased six points.

In spite of rising post-election optimism, reported job creation remained weak in December with the seasonally adjusted average employment change per firm posting a gain of 0.01 workers per firm. Thirteen percent (+1 point) reported increasing employment an average of 2.2 workers per firm and 9 percent (-4 points) reported reducing employment an average of 4.6 workers per firm (seasonally adjusted).

Fifty-one percent reported hiring or trying to hire (-7 points), but 44 percent reported few or no qualified applicants for the positions they were trying to fill. Twelve percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (-4 points).

Twenty-nine percent of all owners reported job openings they could not fill in the current period, down 2 points, but from November’s highest reading in this recovery. This indicates that labor markets remain tight. Eleven percent reported using temporary workers, down 5 points, a surprising drop.

Reports of increased compensation rose 5 points to 26 percent, the second best reading in 2016. The market for “qualified” workers is clearly tight, as recovery high levels of owners categorize the lack of qualified workers as their top business problem. However, owners are having little success in passing higher labor costs along to customers as the frequency of reported price hikes remained low in comparison.

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months improved 1 percentage point to a net negative 7 percent.

Seasonally adjusted, the net percent of owners expecting higher real sales volumes rose 20 points, after a 10 point rise in November, to a net 31 percent of owners, the highest reading since October 2005 with a reading of 40 percent. 

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