U.S. NFIB Small Business Optimism Index (January 2025)

Small Business Optimism Index Cools to Start 2025

• The NFIB's Small Business Optimism Index fell 2.3 points to 102.8 in January, disappointing market expectations for a smaller decline to 104.7.
• Seven out of ten subcomponents deteriorated on the month, with the remaining categories roughly unchanged. The largest declines came from the share of businesses planning to make capital expenditures (down 7 points to 20%), those planning to increase inventories (down 6 points to 0%), and those expecting the economy to improve (down 5 points to 47%). 
• The net share of businesses planning to increase employment fell 1 point to 18%. The share of firms with unfilled job openings was unchanged at 35%. Quality of labor concerns declined in January, with 18% of business owners identifying this as their top business problem. However, in addition to inflation, quality of labor concerns remained the top concern on the minds of small business owners.
• The net share of firms currently increasing employee compensation rose 4 points to 33%, while the net share planning to do so over the next three months fell 4 points to 20% - the lowest level in five months. The share of businesses 'raising' average selling prices fell 2 points to 22% while the share of those 'planning’ to raise average selling prices also fell by 2 points to 26%. 

Key Implications

• Small business confidence retraced some of its post-election gains in January but remained roughly 10 points above its October level. Expectations for more accommodative fiscal and regulatory policy has bolstered optimism on the economy in the months ahead, but many of the subcomponents that track current and planned activity have seen little improvement over the past three months. Severe weather in January may have played a role in this trend, but an elevated degree of uncertainty has also likely weighed on small businesses.
• Small businesses may be more optimistic than they were prior to the election, but they are also more uncertain. In January, the separate small business uncertainty index spiked back to a level it typically only hits during presidential elections. This encompasses the multitude of uncertainties currently prevailing in the market related to monetary, fiscal, and trade policy, which are all interacting simultaneously in firm expectations. With monetary policy on hold for the foreseeable future, fiscal policy grinding its way slowly through Congress, and trade policy front and center, it is likely that uncertainty will remain a constraint on business confidence over the coming months.          

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