U.S. NFIB Small Business Optimism Index (December 2021)

Admir Kolaj, Economist | 416-944-6318 

Date Published: January 11, 2022

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NFIB Small Business Optimism Index Improves in December

  • The National Federation of Independent Business' (NFIB) small business optimism index rose 0.5 points to 98.9 in December. The headline print was slightly better than market expectations for an uptick to 98.5.  
  • Seven of the ten subcomponents rose on the month, while three fell. Earning trends (-14%) and expectations about an improvement in the economy (-35%) increased by three points apiece, but the latter is still among the weakest showings in the survey's history. Plans to increase capital outlays (+2 points to 29%) and the belief that now is a good time to expand (+1 point to 11%) recorded more muted gains. 
  • Most of the survey's labor market indicators were up on the month. The share of firms with unfilled job openings and the share of firms planning to increase employment increased by one and three points respectively to 49% and 28%. At the same time, the share of firms reporting 'few or no qualified' applicants to their job postings rose one point to 57%. 'Quality of labor' concerns backtracked, falling four points, but remained elevated at 25% in December. Meanwhile, 13% of firms cited labor costs as their top business problem – up three points on the month at a 48-year record high. 
  • Businesses continued to place a heavy focus on wage increases in order to attract and retain talent. The share of firms increasing worker compensation surged four points to a fresh new record of 48%, while the share of firms planning further compensation increases in the near-term held steady at an all-time high of 32%. The share of firms raising average selling prices fell slightly in the month (-2 points to 57%) as did those planning to do so (-5 points to 49%). Despite the pull back, both remain near their highest levels on record. Concerns regarding inflation, meanwhile, rose further, with 22% of businesses (+4 points) citing inflation as their top business problem.  

Key Implications

  • Confidence among American small businesses recorded a mild improvement at the end of 2021. This does not appear to fully reflect the drawbacks of the latest infection wave, given the that sharp increase in COVID-19 cases occurred only in late-December. 
  • The worsening public health backdrop is likely to take a toll on confidence at the start of this year, as it weighs on consumer-related industries and exacerbates worker shortages in light of surging absenteeism. The survey's labor market indicators show that the labor market tightness theme remained intact through December, with job openings and the share of firms raising and planning to further raise compensation, all at or near record highs. This suggests that businesses will look past the near-term Omicron hurdle and hang on to their workers.
  • Higher labor costs continue to be unloaded onto consumers and an elevated share of small businesses cite labor costs and inflation as key business problems. These indicators help explain why the Fed will begin to reduce monetary stimulus this year.