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

Small Business Optimism improved for the second consecutive month in December

• The NFIB’s Small Business Optimism Index edged higher for the second month in a row in December, increasing by half a point to 99.5.  The uncertainty index fell by 7 points to 84 – its lowest reading since mid-2024.  
• Of the ten subcomponents in the index, only two improved, three deteriorated, and five remained unchanged. Driving the monthly gain was a 9-point increase in expectations for an improvement in the economy (24%), followed by a 3-point increase in current earnings trends (-20%). On the other hand, expectations about higher real sales pulled back 5 points to 10%, while capital outlay plans recorded a modest pullback (down 1 point to 19%).
• Labor market indicators broadly eased in December. The net share of businesses planning to increase employment fell 2 points to 17%, which is still one of the better showings recorded over the past three years. However, actual hiring remained subdued, with the average change in employment per firm remaining in negative territory for more than half a year. The share of firms with unfilled job openings was unchanged at 33%, below its pre-pandemic level but above its long-term average of 24% and one of the better showings over the last several months. 
• The share of firms reporting 'quality of labor' as their biggest problem fell 2 points to 19%. Meanwhile, the share of firms raising worker compensation rose 5 points to 31%, while the share of those planning future compensation increases remained unchanged at an elevated 24%. Price metrics eased, as shown by declines in net share of businesses raising (-4 points to 30%) and planning to raise average selling prices (-2 points to 28%), while inflation concerns also moderated (-3 points to 15%).

Key Implications

• Small business optimism remained slightly above its long-term average and improved moderately for a second month in a row in December. Last month's gain was driven by a strong increase in expectations regarding an improvement in the economy. It appears that the end of the government shutdown the month prior provided some support, with improved expectations about the economy going hand in hand with a sharp retreat in uncertainty among small businesses. 
• Another positive aspect of the report was a general easing in price metrics. Both recent and planned price increases, as well as inflation concerns edged lower on the month. This aligns with a slightly more subdued inflation reading than anticipated in today's December CPI report. Yet, despite the encouraging direction, the share of firms planning to raise worker compensation and prices remains above historical norms, indicating that these pressures will continue to bear close watching over the near-term.          

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