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

Small Business Optimism Index Improves Significantly in November

• The NFIB's Small Business Optimism Index rose 8.0 points to 101.7 in November, exceeding market expectations for a smaller increase to 95.3.
• Nine out of ten subcomponents improved on the month, with the share of businesses reporting current inventories to be too low being the only unchanged category. The largest increases came from the share of businesses expecting the economy to improve (up 41 points to 36%), those expecting higher real sales in six months (up 18 points to 14%), and those reporting that now is a good time to expand (up 8 points to 14%).
• The net share of businesses planning to increase employment rose 3 points to 18%, reaching its highest level in a year. The share of firms with unfilled job openings ticked up by 1 point to 36%. Quality of labor concerns declined in November, with 19% of business owners identifying this as their top business problem, as they are now roughly tied with inflation concerns which also fell on them month.
• The net share of firms currently increasing employee compensation rose 1 point to 32%, while the net share planning to do so over the next three months rose 5 points to 28% - the highest level of the year. The share of businesses 'raising' average selling prices increased by 3 points to 24% while the share of those 'planning’ to raise average selling prices increased by 2 points to 28%. 

Key Implications

• Small business confidence hit its highest level in over three years in November as the Republican sweep in Washington enhanced expectations for a more accommodative fiscal and regulatory environment in the coming years. This shift in sentiment was borne out across the survey's subcomponents related to expectations, with most notching multi-year highs. However, relatively slim Congressional majorities and higher trade uncertainty kept the small business uncertainty index at a historically elevated level.
• On a more concerning note for the Federal Reserve, the share of small businesses raising average selling prices has become stuck at an elevated level, similar to the recent trend in core PCE inflation. This appears to be in part driven by a recent uptick in plans to raise employee compensation, however with labor market conditions continuing to come into better balance it is unlikely this will pose a material risk to the Fed's current rate cut trajectory. We expect interest rate cuts to continue with another 25 basis-point cut in December, followed by additional easing through 2025.          

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