The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for December dipped from 104.8 in November to come in at 104.4. The August index reading of 108.8 was the highest in the 45-year history of the index. The consensus estimate from economists had called for the November index to slip to 104.

The percentage of business owners who now expect the economy to improve in the next few months fell from 22% in November to 16% in November. The percentage who expect sales to rise over the same period dropped from 24% to 23%.

Some 35% of small business owners reported raising employees’ pay in the past three months. That’s up a point on a seasonally adjusted basis compared with November, and down slightly from September’s all-time high of 37%. Since January of 2018, net compensation projections have remained flat at 24%.

The four “hard” measures of the index posted mixed results last month. The month-over-month job creation component rose one point to 23%, the job openings component rose four points to 39%, capital spending plans dipped four points to 25%, and plans to increase inventory investment rose four points to 6%.

NFIB President and CEO Juanita Duggan commented:

Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects. Two of every three of these new jobs are historically created by the small business half of the economy so it will be Main Street that will continue to drive economic growth.

In its commentary on the October report, the NFIB noted:

Since the economy took off after the [2016] election, there have been two themes promoted by the press: (1) the economy is going to overheat and cause inflation and (2) the economy is slowing, and the Federal Reserve should not raise interest rates. Over that period, the NFIB surveys of the “small business” half of the economy have shown that there was and is no inflation threat and now shows that in spite of the gloom and doom in the press, Main Street remains historically very strong, setting record levels of hiring along the way.

Some 39% of business owners reported job openings they couldn’t fill. More than half (54%) reported few or no qualified applicants for available jobs. Nearly a quarter (23%) of business owners said finding qualified workers is their single most important business problem.

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