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

The National Federation of Independent Business reported its Small Business Optimism Index fell 5.5 points to 95.9 in December. With the loss, the index fell below the nearly 50-year average of 98.

“This month’s drop in small business optimism is historically very large, and most of the decline was due to the outlook of sales and business conditions in 2021,” said Bill Dunkelberg, chief economist of the NFIB. 

“Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation,” Dunkelberg said.

Tony Gagliardi, state director of the NFIB in Colorado, also lamented the latest index reading. “The hope is gone for many owners. Another round of (Paycheck Protection Program) loans could certainly help, but so too would some certainty of protection from frivolous lawsuits. When businesses follow guidelines imposed by government officials designed to protect the employees and the public, those same officials should not leave these businesses exposed to further damage caused by frivolous lawsuits.”

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, nine of 10 components of the index retreated.

The proportion of those who responded to the survey who expect the economy to improve over the next six months dropped 24 points from November. At a net negative 16 percent, more respondents anticipated worsening than improving conditions.

The share of those who expect higher sales fell 14 points to a net negative 4 percent.

The proportion of those reporting higher earnings fell seven points. At a net negative 14 percent, more respondents reported lower than higher earnings.

Among those reporting lower profits, 55 percent blamed weak sales, 11 percent reported unusual seasonal changes, 6 percent cited higher materials costs and 6 percent said labor costs increased. 

A net 17 percent of respondents reported plans to increase staffing, down four points. Dunkelberg said job growth continued in December, but hiring in some sectors slowed because of business closures related to the pandemic.

Still, 32 percent of respondents reported hard-to-fill job openings, down two points. At the same time, 21 percent cited finding qualified labor as their single most important problem. That proportion tied with taxes and ranked ahead of taxes and poor sales. 

A net 22 percent of those who responded to the survey reported plans to make capital outlays, down four points. A net 8 percent said they consider now a good time to expand, also down four points.

A net 4 percent of respondents reported plans to increase inventories, down a point. A net 7 percent said current inventories were too low, up two points.