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Economy in Brief

U.S. Small Business Optimism Index Edges Up in December
by Tom Moeller  January 11, 2022

• Optimism reading, however, remains below June level.

• Component increases are modest.

• Pricing power slips.

The Small Business Optimism Index of 98.9 in December remained little changed from 98.4 in November as small business owners remained concerned about inflation in prices and labor costs. Seven of the index's ten components rose modestly while three eased. The NFIB Uncertainty Index rose to the highest level in three months.

The net balance of respondents expecting the economy to improve over the next six months improved slightly to -35% in December, the highest level in three months. The figure remained well below its June 2020 peak of 39%. Expected higher real sales rose minimally. Plans to expand the business edged up to 11% from 10% but remained below the June 2021 high of 15%. An increased 29% of firms expected to make capital outlays compared to a recent low of 20% in March of last year.

Employment readings improved slightly. The net balance of firms planning to raise employment edged up to 28% in December from 25% in November, placing it at the highest level since August. Finding qualified candidates to fill job openings became a little harder. The index measuring few or no qualified applicants rose to 57% from 56%, though it remained below the September high of 62%. The percentage of firms raising worker compensation surged to a record 48% and the percentage planning to raise compensation was steady at the record 32%.

Price inflation pressures continued to intensify with a net 57% percent of respondents raising average selling prices, down slightly from November's record 59%. It was increased from 16% in December 2020. The percentage planning to raise prices fell to 49% from November's record 54%, but compared to 22% in December 2020.

Twenty-five percent of respondents cited the quality of labor as their most important problem, down from the record 29% in November, while a record 13% cited labor costs. Inflation surged to 22% of respondents reporting it as the single most important problem, up from two percent in December 2020. Government requirements where cited by a steady 10% of respondents as the single most important problem, down from a May 2013 high of 23%.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

Nomination Hearing by Federal Reserve Chair Jerome H. Powell can be found here.

National Federation of Independent Business (SA, Net % of Firms) Dec Nov Oct Dec '20 2021 2020 2019
Small Business Optimism Index (1986=100) 98.9 98.4 98.2 95.9 98.8 99.6 103.0
Firms Expecting Economy to Improve -35 -38 -37 -16 -24 20 13
Firms Expecting Higher Real Sales 3 2 0 -4 -0 1 18
Firms Reporting Now Is a Good Time to Expand the Business 11 10 10 8 11 13 25
Firms Planning to Increase Employment 28 25 26 17 25 16 19
Firms With Few or No Qualified Applicants for Job Openings (%) 57 56 58 48 55 46 52
Earnings Trends -14 -17 -17 -14 -13 -16 -5
Firms Reporting that Credit Was Harder to Get 4 1 2 3 2 3 4
Firms Raising Average Selling Prices 57 59 53 16 42 5 13
Firms Raising Worker Compensation 48 44 44 21 37 23 31
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