The NFIB Small Business Optimism Index experienced a modest uptick in December, rising by 1.3 points to reach 91.9. However, despite the increase, the index remained below the 50-year average of 98 for the 24th consecutive month. Small business owners, while cautiously optimistic, grapple with persistent concerns, particularly regarding inflation and labor quality.
Key Insights from the NFIB Small Business Optimism Index
1. Inflation Tops Concerns
Twenty-three percent of small business owners identified inflation as their single most important problem, surpassing labor quality and reflecting a one-point increase from the previous month.
2. Economic Outlook
Small business owners expecting improved business conditions over the next six months increased by six points from November to a net negative 36%, showing a positive shift compared to June’s net negative 61%.
3. Labor Market Dynamics
A net 29% of owners planned to raise compensation in the next three months, down one point from November. The frequency of job openings, as reported in NFIB’s monthly jobs report, remained high, with 40% of owners reporting unfilled job openings.
4. Sales and Capital Expenditure
The net percent of owners expecting higher real sales volumes improved four points to a net negative 4%, the highest reading since January 2022. Fifty-eight percent of owners reported capital outlays in the next six months, with 24% planning capital outlays in the coming months.
5. Profit Trends and Borrowing:
The frequency of reports of positive profit trends showed improvement, with a net negative 25%, seven points better than November. Regarding borrowing, 3% of owners reported that all their borrowing needs were not satisfied.
Analysis of NFIB Chief Economist Bill Dunkelberg
While the small uptick in the NFIB Small Business Optimism Index is notable, Chief Economist Bill Dunkelberg emphasises that small business owners remain notably pessimistic about economic prospects. Inflation and labor quality persist as challenges, with skepticism about significant improvement in 2024.
The NFIB Small Business Optimism Index reflects a nuanced landscape for small businesses, balancing positive shifts in economic outlook with ongoing challenges. As businesses navigate uncertainties, the focus on inflation, labor quality, and economic conditions underscores the resilience required for sustained recovery. Small businesses, as vital contributors to the economy, continue to adapt and strategise amid evolving circumstances.
