Small Business Optimism Drifts Slightly Lower

Optimism among small business owners drifted slightly lower as expected in December, according to the Small Business Optimism Index, which extended November's sharper decline by another 0.4 points to 104.4. Accounting for most of the modest decrease was a drop of 6 points to a net 16 percent in expectations that the economy will improve over the next 6 months, a 5-point decrease to a net 24 percent in the view that now is a good time to expand, and a 4-point decrease to a net 25 percent in plans to make capital outlays.

Diminished optimism was also seen in earnings trends, which fell further into negative territory with a 3-point drop to minus 7 percent, as well as expectations of higher retail sales, which fell 1 point to a net 23 percent. Expected credit conditions were also down 1 point to a net minus 6 percent.

But optimism strengthened in December on the employment front, with plans to increase employment rising 1 point to a net 23 percent, while a record 39 percent of small business owners reported job openings they could not fill in the current period, up 5 points from November.

Views on inventories also brightened, with plans to increase inventories rising 6 points to a net 8 percent, while the percent of owners viewing current inventories as too low rose 4 points to minus 1 percent.

On the inflation front, a net 25 percent of small business owners plan to hike prices, down 4 points from November, but the net percent of owners already raising average selling prices rose 1 point to a net 17 percent.

Overall, despite the extension of the cooling seen in November, many of the December survey responses remain at historically high levels of optimism, indicating continued solid strength in the small business sector.