Small Business Optimism Index declines

William Dunkelberg

A measure of optimism among small business owners has declined on less upbeat expectations for the economy, sales and earnings.

“Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business.

The NFIB reported its Small Business Optimism Index retreated 2.1 points to 89.8 in December. The index has remained below the 49-year average of 98 for 12 consecutive months.

“Owners are managing several economic uncertainties and persistent inflation, and they continue to make business and operational changes to compensate,” Dunkelberg said.

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, eight of 10 components of the index declined.

The proportion of NFIB members responding to the survey upon which the December index was based who expected the economy to improve fell eight points. At a net negative 51 percent, more members anticipated worsening conditions.

A net 23 percent reported plans for capital outlays, down a point from November. A net 5 percent said they consider now a good time to expand, also down a point.

The share of those who expected increased sales fell two points. At a net negative 10 percent, more forecast decreased sales.

Expectations for profits declined eight points to a net negative 30 percent. Among those reporting lower profits, 30 percent cited higher material costs and 24 percent blamed weaker sales.

A net 17 percent of survey respondents reported plans to increase staffing, down a point. A net 41 percent cited unfilled job openings, down three points.

The proportion of respondents planning to increase inventories remained unchanged at a net negative 4 percent. A net 1 percent said existing inventories were too low, up three points.

Asked to identify their single most important business problem, 32 percent cited inflation, up 10 points from a year ago.

Still, the proportion of respondents reporting raising average selling prices dropped eight points to a net 43 percent. That’s the lowest level since May 2021. Price hikes were most frequent in the wholesale, manufacturing and construction sectors.