Small business index soars on more upbeat expectations

Juanita Duggan
Juanita Duggan

A monthly measure of optimism among small business owners has jumped to its highest level since 2004 on more upbeat expectations for improving conditions.

“We haven’t seen numbers like this in a long time. Small business is ready for a breakout, and that can only mean very good things for the U.S. economy,” said Juanita Duggan, president and chief executive officer of the National Federation of Independent Business.

The NFIB reported that its Small Business Optimism Index climbed 7.4 points to 105.8 in December, well above its historical average of 98. A separate measure of uncertainty among small business owners dropped 15 points to 85.

Nearly half the gain in the optimism index was attributed to a 38-point increase in the proportion of NFIB members responding to the survey upon which the index was based who expect the economy to improve — from a net 12 percent to a net 50 percent.

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group, most of them small business owners. For December, seven out of 10 components of the index advanced, while two retreated and one remained unchanged.

A net 31 percent of owners said they expect higher sales, up 20 points.

A net 29 percent of owners reported plans to increase capital outlays over the next three months, up five points. A net 23 percent of owners characterized now as a good time to expand, an increase of 12 points.

“Business owners are feeling better about taking risks and making investments,” Duggan said. “Optimism is the main ingredient for economic expansion. We’ll be watching this trend carefully over the next few months.”

A net 16 percent of owners said they plan to increase staffing, up a point. A net 29 percent of owners reported hard-to-fill job openings, down two points.

Bill Dunkelberg, chief economists of the NFIB, said the labor market is tightening, but small business owners aren’t yet confident enough to raise prices to offset higher wages.

The share of owners who said they expect to increase inventories remained unchanged at a net 4 percent. The portion of those who said existing inventories are two low edged up a point, but remained at a net negative 3 percent.

The share of owners who reported higher earnings rose six points. But at a net negative 14 percent, more owners reported lower earnings than higher earnings.