US small business optimism rises but inflation worries persist

Optimism among small businesses in the United States was better than expected in December, according to a survey out on Tuesday from the NFIB Research Foundation, though inflation is still a concern for many.

The NFIB Small Business Optimism Index increased 1.3 points in December to 91.9, up from 90.6 in November and well ahead of the 90.7 reading expected by economists.

Nevertheless, this was the 24th straight month below the 50-year average of 98.

“Small business owners remain very pessimistic about economic prospects this year,” said NFIB chief economist Bill Dunkelberg. “Inflation and labour quality have consistently been a tough complication for small business owners, and they are not convinced that it will get better in 2024.”

A net negative 36% of small business owners said they expected better business conditions over the next six months, though things continue to improve after hitting a net negative 61% in June 2023.

On the bright side, a net 29% of owners said they plan to raise compensation over the next three months, though this was down one point from November. And those expecting real sales to be higher increased four points from November to a net negative 4% – the highest reading since January 2022.

Nevertheless, 23% reported that inflation was their single most important problem in operating their business, up one point from last month.

"Small business owners love a rising stock market, which drives the three expectations measures in the headline index," said Ian Shepherdson, chief economist at Pantheon Macreconomics.

"These three components accounted for the entire increase in the headline measure, and are likely to rise again in January, allowing for the usual lag between market performance and the response in the survey. Further gains, however, will require the market to hit new highs."