Economy

December Small Business Optimism Dips, but 2017 Sets New Index Record

Paul Ausick

Published: January 9, 2018 8:30 am

Last Updated: January 12, 2020 4:40 am

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for December slipped by 2.6 percentage points from 107.5 in November to come in at 104.9. The consensus estimate from economists called for the index to increase by 0.4 percentage points to 107.9.

For the full year, the average monthly index was 104.8, the highest ever. The previous annual record of 104.6 was set in 2004.

The four “hard” measures of the index posted mixed results last month. The job creation component fell by four points month over month in December to 20%, the job openings component rose one point to 31%, capital spending plans rose a point to 27%, and inventory investment plans fell by eight points to −1%.

Some 27% of small business owners reported raising employees’ pay in the past three months. That’s unchanged on a seasonally adjusted basis from both October and November. Since January, net compensation changes have dropped by three percentage points. Some 23% of small business owners are planning to raise wages in the next three months, up four points month over month and five points higher compared to January.

In its comments on the report, NFIB noted:

The change in the management team in Washington dramatically improved expectations, and that began to translate into increased sales and hiring. Owners did not know exactly what the tax bill would look like, but believed that whatever it looked like, it would be a significant improvement over what was currently in force. … Small business owners had it right, their optimism (and subsequent sales and hiring) rose the day after the election results were announced. … The private sector can make good things happen once the heavy hand of government management of the economy is lifted.

The NFIB reports that 31% of business owners currently have positions open that they are unable to fill (up a percentage point from November and flat compared to January) and that 54% said there were few or no qualified applicants for the open positions, up 10 points from the prior month’s total and seven points since January.

Business owners said their single most important problem is taxes (21%), followed by quality of labor (19%). Government regulations and red tape (16%) and cost/availability of insurance (10%) were the third and fourth most-cited problems. The least important problems are financing/interest rates (1%) and inflation (2%).