Small Business Optimism Jumps in December

The four “hard” measures of the index were down a combined 1% month-over-month. The job creation component rose a point to 11%, the job openings component was unchanged at 24%, capital spending plans slipped a point to 25% and inventory investment plans slipped one point to 2%.

The largest increase in an index component was a whopping 16 point gain in expectations for an improving economy, which rose from -3% to 13% of business owners surveyed. Expectations for improved real sales rose five points to 14%. Combined, these two “soft” measures accounted for the entire gain in the December index.

In December, small business owners identified their two most important problems as taxes and government regulations and red tape. Only taxes scored higher in December 2014 than in 2013. The quality of labor score increased year-over-year from 8 points to 10.

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The NFIB’s chief economist said:

Third quarter real GDP growth was revised up to 3.9 percent making the 6 months in the middle of 2014 one of the best growth periods in decades. However, this didn’t do much for small business job creation in the U.S. One reason is that a lot of this growth has been driven by inventory building, unusual defense outlays and exports, selling around the world, an activity that doesn’t involve many small businesses. Expectations for growth in the fourth quarter are not as rosy, reverting to the high 2 percent pace.

The NFIB reports that 24% of business owners currently have positions open they are unable to fill (unchanged from October) and 45% said there were few or no qualified applicants for the open positions.

Wages and earnings rose three points to a net negative reading of 17. That equals the best reading since 2007. Some 22% of small businesses reported that compensation costs rose, while 2% reported a drop. A total of 15% of employers plan to raise compensation costs in the next few months, up two points from the October reading.

The NFIB noted:

[I]t appears likely that the [November] election outcome played a significant role in improving the Index of Small Business Optimism, but only two of the ten Index components appeared to be impacted. What is needed is a translation of this optimism into spending and hiring.

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