U.S. NFIB Small Business Optimism Index (December 2024)

Small Business Optimism Index rose to six-year high in December as uncertainty subsided

• The NFIB's Small Business Optimism Index rose 3.4 points to 105.1 in December, beating market expectations for a mild decline. The uncertainty subindex continued to retreat, falling another 12 points in December to 86.
• Seven out of ten main subcomponents improved on the month, two fell and one remained unchanged. The largest increase was in the share of owners expecting the economy to improve, which rose 16 points to 52% – the highest level since 2002. Notable gains were also recorded in the share of owners believing that now is a good time to expand (up 6 points to 20%) and expectations about higher real sales (up 8 points to 22%).
• The net share of businesses planning to increase employment rose 1 point to 19%, reaching its highest level since spring 2023. The share of firms with unfilled job openings fell one point to 35%. Quality of labor concerns held steady, with 19% of business owners identifying this as their top business problem, second behind inflation concerns. The latter remained unchanged at 20%.
• The share of firms increasing employee compensation fell 3 points to 29%, while the share of firms planning to do so over the next three months fell 4 points to 24% – reversing much of the outsized increase in the month prior. 

Key Implications

• Post-election optimism continues to reverberate across the small business community as uncertainty continues to subside. The improvement is visible in the headline NFIB confidence measure, which rose to its highest level in six years and is echoed across several sub-indicators. For instance, the belief that 'now is a good time to expand', and expectations about 'an improvement in the economy' and 'higher real sales' all surged higher at the tail end of 2024. 
• As last week's payrolls report showed us, the labor market continues to chug along at a healthy clip, and small businesses appear to echo this theme with plans to increase employment trending up recently. That said, it remains to be seen if this will lead to a major improvement in job growth over the near-term as not all indicators are singing to the same tune. Small business job openings have failed to mimic the improvement in employment plans, instead holding flat at a level that's roughly in line with the pre-pandemic period. Additionally, the fact that compensation trends retreated in December suggests that businesses may not be in a major hurry to fill their open positions.          

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