The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for December rose 2.3 points from 98.1 in November to come in at 100.4. The December reading is the highest index reading since October 2006.

The four “hard” measures of the index rose sharply last month. The job creation component rose four points to 15%, the job openings component rose one point to 25%, capital spending plans rose four points to 29% and inventory investment plans rose three points to 5%.

The largest increase in an index component was a six-point gain in sales expectations, which rose from 14% to 20% of business owners surveyed. Only expectations for an improved economy fell, and that by just one point to 12%.

In December, small business owners identified their two most important problems as taxes (27%) and government regulations and red tape (22%). Poor sales and quality of labor both scored 11% as the third-most important problem from small business owners.

The NFIB’s chief economist said:

The recovery of Main Street which consists of about 5.5 million firms with fewer than 20 employees, can provide a good base for stronger economic growth. But any election euphoria that persists will soon be snuffed out if Congress cannot lay out a positive plan and make some progress on the top problems facing small business owners including: health insurance costs, uncertainty about economic policy, energy costs, the cost of regulations and red tape and the tax code which is too confiscatory, too complex, and changed too often. Prospects for progress are not that good with President Obama still holding his veto pen.

The NFIB reports that 25% of business owners currently have positions open that they are unable to fill (up a point from November) and that 43% said there were few or no qualified applicants for the open positions.

Wages and earnings rose two points to a net negative reading of 15. Some 24% of small businesses reported that compensation costs rose, while 3% reported a drop. A seasonally adjusted total of 17% of employers plan to raise compensation costs in the next few months, up two points from the November reading.

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