Important points
- The NFIB Small Business Optimism Index exceeded expectations in December at 91.9, up 1.3 points from the previous month and above the 2023 average of 90.7.
- Business leaders have given their best outlook for business conditions in five months, with expectations for real sales at the highest level since early 2022, as concerns over worker quality subside.
- Despite the rise, the index remains at a historic low compared to its average of 98 over the past 50 years.
- Companies are reporting hiring back, with 16% saying they plan to hire more, down from 18% in November.
Small business owners are less pessimistic, with expectations for sales rising to their highest level in more than a year, while fewer concerns about workforce quality are reported and the labor shortage is slowing. It has been shown that it is possible.
The National Federation of Independent Business (NFIB) Small Business Optimism Index for December was a better-than-expected 91.9, up 1.3 points from the previous month and above the 2023 average of 90.7. It was the highest value since July. Despite the rise, the index remains at a historic low compared to its average of 98 over the past 50 years.
Bill Adams, Comerica Bank's chief economist, cited a recent monthly survey from the Conference Board and the University of Michigan, saying, “In parallel with the significant rise in consumer confidence, small business owners' economic outlook was positive in December. “The gloom has definitely eased further.''
Overall, the general economic outlook is at its highest level in five months, well above where inflation peaked in June 2022, when sentiment weakened. The survey showed owners' expectations for real sales rose to their highest level since early 2022, with earnings expectations also rising sharply. The economic outlook and credit conditions improved, contributing to the overall lift in the index.
However, the survey shows small business owners remain concerned, with 23% citing inflation as their top issue, along with workforce quality and taxes. As in the November survey, only 8% of companies said it was a good time to expand. And although expectations for the economy have improved, the measure still registered a net negative 36%, indicating that a large majority feel the outlook for the next six months is poor.
Additionally, companies are reporting that they are pulling back on hiring, with 16% saying they plan to increase hiring, down from 18% in November. Official government measures regarding the labor market show a similar cooling trend.
“Small business owners remain extremely pessimistic about this year's economic outlook,” Bill Dunkelberg, chief economist at NFIB, said in a statement. “Inflation and labor quality are consistently challenging issues for small business owners, and we are not confident that the situation will improve in 2024.”
Employers have struggled to hire workers since the pandemic led to an increase in layoffs, and by continuing to add workers, employers are seeing a surge in job openings, keeping unemployment low and providing workers with a Maintains a favorable job market. However, while executives cite deteriorating workforce quality as a persistent concern, 20% of companies cite it as their most pressing issue, the lowest since 2020, which is the lowest since 2020. “This shows that we are making progress,” Adams said.
Managers' outlooks can be influenced by partisan perceptions in addition to economic realities. According to a 2022 analysis by UBS, NFIB surveys tend to be “very strongly correlated with Republican consumers' economic views.” Notably, this index soared to an all-time high after President Donald Trump's election in 2016, and has stagnated at a low level under the Biden administration.
