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Small Business Optimism Falls Below Half-Century Average in December

Paul Ausick

Published: January 12, 2021 9:59 am

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index declined by 5.5 index points month over month in December to 95.9. The index has now dropped below its 47-year average of 98.

The percentage of business owners who now expect the economy to improve in the next few months tumbled by 24 percentage points to a negative 16% in December following a 19-point dip in November and a drop of five points in October. The earnings trend fell by seven points from a net negative 7% to a net negative 14% of business owners reporting quarter-over-quarter profits.

Some 21% of small business owners reported raising employees’ pay in the past three months. That’s down by three points on a seasonally adjusted basis compared with November. The percentage of firms planning to raise net compensation fell by six percentage points to 14%.

NFIB chief economist Bill Dunkelberg said that the drop in the index below the historical average resulted from “substantial weakness in the outlook for sales and business conditions in 2021 which brings new Covid threats and the uncertainty about economic policy with a new administration in Washington.”

Some 32% of business owners reported job openings they couldn’t fill, down by two points month over month. Nearly half (48%) of business owners who reported hiring or trying to hire workers last month turned up few or no qualified applicants for the available jobs. Net change to employment has declined by 2% since September.

Last week’s report on the employment situation showed that nonfarm payrolls fell by 140,000 in December, the first decline since May, when the country began recovering from the effects of the early COVID-19 lockdowns. Restaurants and bars were particularly hard hit, as were teachers and other public employees who were laid off as state and local governments became increasingly strapped for cash.

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