Small business optimism increased last month, surpassing its 50-year average for the first time in nearly three years, according to the National Federation of Independent Business.
The index for optimism increased eight points to 101.7, which was higher than its 50-year average of 98 and its highest reading since June 2021. The index for uncertainty fell 12 points to 98 after reaching a record 110 in October. The NFIB attributed the drop to business owners feeling more positive certainty following November’s general election.
“The election results signal a major shift in economic policy, particularly for tax and regulation policies, that favor economic growth,” according to the NFIB. “Economic and employment growth have been dominated by government spending, financed with massive deficits, crowding out private spending with higher prices and interest rates.”
Thirty-six percent of owners had job openings they could not fill in November, up one point from October. Challenges filling open positions were especially prevalent in transportation, construction and professional services industries. Thirty percent had openings for skilled workers, and 13 percent had openings for unskilled labor.
More than half reported capital outlays in the last six months. Of those, 39 percent invested in new equipment, 22 percent acquired vehicles and 14 percent improved or expanded facilities. Twenty-eight percent expect to make capital outlays in the next six months, up six points from October and its highest reading in nearly three years.
Twenty percent of owners cited inflation as the No. 1 problem in operating their business, down three points from October and one point higher than labor quality. Eleven percent of owners cited labor costs as their top problem, up three points from October and only two points under its record of 13 percent in December 2021.
A net negative 13 percent of owners had higher nominal sales in the past three months, up seven points from October’s more than four-year low. Owners expecting higher real sales volumes increased 18 points to a net 14 percent, its highest reading since February 2020.
A net 32 percent raised compensation, up one point from October and a historically high reading. Twenty-eight percent expect to increase compensation in the next three months, up five points from October and its highest reading of the year.
Profit trends were still relatively weak. The frequency of positive profit trends was a net negative 26 percent, up seven points from October and its highest reading in 2024. Owners seeing lower profits cited weaker sales, rising materials expenses and lower selling prices.