Small business optimism rocketed to its highest level since 2004, with a stratospheric 38-point jump in the number of owners who expect better business conditions, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
“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.”
State-specific data isn’t available, but Nicole Riley, state director of NFIB, said the national trends are reflected here. “Small businesses aren’t going to invest in new equipment or facilities or create jobs unless they’re optimistic about the future, so these results are very encouraging.”
The Index reached 105.8, an increase of 7.4 points. 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.
“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,” Dunkelberg said. “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.
“Business owners are feeling better about taking risks and making investments,” Duggan said. “Optimism is the main ingredient for economic expansion. We’ll be watching this trend carefully over the next few months.”
Despite sharply higher optimism, hiring activity remained flat in December. Job creation increased by 0.01 workers per firm and job openings dropped two points. According to the NFIB Jobs report, released last week, finding qualified workers remains a persistent problem for small business owners.
“The labor market is getting tighter,” Dunkelberg said. “That’s good news for workers because they can command higher compensation, but many small business owners aren’t yet confident enough to raise prices to offset the higher labor costs. Owners are still in a pinch, but the overall picture for December was very positive.”