OPTIMISM INDEX
Small business optimism expands on an improved economic outlook
post-election. The Optimism Index rose by 3.4 points in December to
105.1, the second consecutive month above the 51-year average of 98.
This is the highest reading since October 2018. Of the 10 Optimism
Index components, seven increased, two decreased, and one was
unchanged. The Uncertainty Index declined 12 points to 86, as
business owners became more certain about economic policies
following the election.
LABOR MARKETS
In December, 35 percent (seasonally adjusted) of all owners reported
job openings they could not fill in the current period, down 1 point
from November. Twenty-nine percent have openings for skilled
workers (down 1 point) and 13 percent have openings for unskilled
labor (unchanged). The difficulty in filling open positions is particularly
acute in transportation, construction, and manufacturing industries.
Job openings in construction were down 13 points from last month
and down 17 points from the prior year, with 41 percent reporting a
job opening they cannot fill. Openings were the lowest in the
agriculture and finance industries. A seasonally adjusted net 19
percent of owners plan to create new jobs in the next three months,
up 1 point from November. The last time hiring plans were this high
was May 2023. Overall, 55 percent reported hiring or trying to hire in
December, unchanged from November. Forty-nine percent (89 percent
of those hiring or trying to hire) of owners reported few or no qualified
applicants for the positions they were trying to fill (up 1 point). Twentyeight percent of owners reported few qualified applicants for their
open positions (down 1 point) and 21 percent reported none (up 2
points). The percent of small business owners reporting labor quality
as the single most important problem for business was unchanged
from November at 19 percent. Labor costs reported as the single most
important problem for business owners was unchanged from
November at 11 percent, only 2 points below the highest reading of 13
percent reached in December 2021.
CAPITAL SPENDING
Fifty-six percent reported capital outlays in the last six months, up 2
points from November. Of those making expenditures, 37 percent
reported spending on new equipment (down 2 points), 24 percent
acquired vehicles (up 2 points), and 16 percent improved or expanded
facilities (up 2 points). Eleven percent spent money on new fixtures
and furniture (down 1 point) and 7 percent acquired new buildings or
land for expansion (unchanged). Twenty-seven percent (seasonally
adjusted) plan capital outlays in the next six months, down 1 point
from November’s highest reading since January 2022.
This survey was conducted in December 2024. A sample of 5,000 small-business owners/members was
drawn. Five hundred thirteen (513) usable responses were received — a response rate of 10.3 percent.
2 | NFIB Small Business Economic Trends Monthly Report
SALES AND INVENTORIES
A net negative 13 percent of all owners (seasonally adjusted) reported
higher nominal sales in the past three months, unchanged from
November. The net percent of owners expecting higher real sales
volumes rose 8 points to a net 22 percent (seasonally adjusted). This is
the highest reading since January 2020. The net percent of owners
reporting inventory gains rose 7 points to a net 0 percent (seasonally
adjusted). Not seasonally adjusted, 13 percent reported increases in
stocks (up 3 points) and 14 percent reported reductions (down 2
points). A net negative 1 percent (seasonally adjusted) of owners
viewed current inventory stocks as “too low” in December, up 1 point
from November (e.g., inventory stocks are too large relative to
expected sales). A net 6 percent (seasonally adjusted) of owners plan
inventory investment in the coming months, up 5 points from
November and the highest reading since December 2021.
COMPENSATION AND EARNINGS
Seasonally adjusted, a net 29 percent reported raising compensation,
down 3 points from November and the lowest reading since March
2021. A seasonally adjusted net 24 percent plan to raise compensation
in the next three months, down 4 points from November. The
frequency of reports of positive profit trends was a net negative 26
percent (seasonally adjusted), unchanged from November. Among
owners reporting lower profits, 35 percent blamed weaker sales, 13
percent cited usual seasonal change, 12 percent blamed the rise in the
cost of materials, and 11 percent cited labor costs. For owners
reporting higher profits, 51 percent credited sales volumes, 22 percent
cited usual seasonal change, and 7 percent cited higher selling prices.
CREDIT MARKETS
Two percent of owners reported that all their borrowing needs were
not satisfied, down 2 points from November. Twenty-four percent
reported all credit needs met (down 2 points) and 65 percent said they
were not interested in a loan (up 3 points). A net 4 percent reported
their last loan was harder to get than in previous attempts (down 3
points). Four percent reported that financing was their top business
problem in December (down 1 point). A net 1 percent of owners
reported paying a higher rate on their most recent loan, down 4 points
from November and the lowest reading since September 2021. The
average rate paid on short maturity loans was 8.7 percent, down 0.1 of
a point from November. Twenty-five percent of all owners reported
borrowing on a regular basis, down 3 points from November.
INFLATION
The net percent of owners raising average selling prices was
unchanged from November at a net 24 percent seasonally adjusted.
Twenty percent of owners reported that inflation was their single most
important problem in operating their business (higher input and labor
costs), unchanged from November and leading labor quality as the top
issue by 1 point. Unadjusted, 11 percent (unchanged) reported lower
average selling prices and 31 percent (down 1 point) reported higher
average prices. Price hikes were most frequent in the finance (56
percent higher, 15 percent lower), retail (38 percent higher, 6 percent
lower), construction (30 percent higher, 9 percent lower), and
transportation (30 percent higher, 9 percent lower) sectors. Seasonally
adjusted, a net 28 percent plan price hikes in December (unchanged).
COMMENTARY
For the first 10 months of 2016, the Optimism Index averaged
94. Then there was the presidential election in November and
the Index soared to 105.9. From January 2022 to October 2024,
the Index averaged 94 (the 51-year average is 98), a poor
showing. But in December 2024, the Index surged to 105.1, very
similar to 2016. The years under Trump delivered, solid growth,
low unemployment, and inflation under 2 percent. But results
like that are not guaranteed by solid optimism. Sound economic
policies and luck are needed to produce good economic
outcomes.
Based on election polls, the top concern of voters was inflation.
Currently, inflation is under 3 percent, but above the 2 percent
Fed target. More likely the issue is the 20 percent increase in
selling prices (CPI) since 2020, consumers want prices to fall, not
continue to rise even if at a very low inflation rate. Small
business owners share the same sentiment, high prices (costs)
are the concern, not the rate of price increases. Inflation remains
the top business problem, just ahead of the quality of labor in
second place. The cost of energy impacts virtually all products
and was a major factor impacting the good inflation experience
from 2016-2020. Policies that expand energy production and
lower energy prices would contribute to lower inflation and even
falling prices.
Taxes will be a top policy focus as well, with a promise to
preserve the TCJA tax cuts passed in 2017. This is a top concern
for small business owners and important tax-related legislation
will be an early agenda item for the new administration.
Deregulation will also be a welcomed reversal from the previous
administration’s agenda that caused much consternation among
the small business community.
It will be a noisy first year, with many distractions including the
wars involving Israel and Ukraine, talk about the Panama Canal
and Greenland, and relations with Russia and China.
Domestically, there are plenty of headaches including the
border, crime, and activist activities. Natural disasters (fires,
floods, storms) will continue to demand attention. The Fed will
likely cut rates by 50 basis points during the year. All this with a
new team of managers. It will be a bumpy ride.
