Small Business Optimism Index
Small Business Optimism Index
Overview
The NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in January 2025.
January 2025 Report: Small Businesses Remain Optimistic, But Uncertainty Rising on Main Street
The NFIB Small Business Optimism Index fell by 2.3 points in January to 102.8. This is the third consecutive month above the 51-year average of 98. The Uncertainty Index rose 14 points to 100 – the third highest recorded reading – after two months of decline.
Overall, small business owners remain optimistic regarding future business conditions, but uncertainty is on the rise. Hiring challenges continue to frustrate Main Street owners as they struggle to find qualified workers to fill their many open positions. Meanwhile, fewer plan capital investments as they prepare for the months ahead.
NFIB Chief Economist Bill Dunkelberg
The net percent of owners expecting the economy to improve fell five points from December to a net 47% (seasonally adjusted).
Eighteen percent of owners reported that inflation was their single most important problem in operating their business, down two points from December and matching labor quality as the top issue. The last time it was this low was in November 2021.
The net percent of owners raising average selling prices fell two points from December to a net 22% (seasonally adjusted).
Seasonally adjusted, a net 26% plan price hikes in January, down two points from December.
Thirty-five percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, unchanged from December.
Twenty percent (seasonally adjusted) plan capital outlays in the next six months, down seven points from December.
A net 3% of owners reported that their last loan was harder to get than in previous attempts (down one point). The last time it was this low was June 2022.
A net 0% (seasonally adjusted) of owners plan inventory investment in the coming months, down six points from December’s highest reading since December 2021.
As reported in NFIB’s monthly jobs report, a seasonally adjusted 35% of all small business owners reported job openings they could not fill in January, unchanged from December. Of the 52% of owners hiring or trying to hire in January, 90% reported few or no qualified applicants for the positions they were trying to fill.
The percent of small business owners reporting labor quality as the single most important problem for business fell one point from December to 18%. Labor costs reported as the single most important problem for business owners fell two points to 9%, four points below the highest reading of 13% reached in December 2021.
Seasonally adjusted, a net 33% reported raising compensation, up four points from December’s lowest reading since March 2021. A seasonally adjusted net 20% plan to raise compensation in the next three months, down four points from December.
Fifty-eight percent of owners reported capital outlays in the last six months, up two points from December. Of those making expenditures, 41% reported spending on new equipment, 24% acquired vehicles, and 16% improved or expanded facilities. Twelve percent spent money on new fixtures and furniture and 5% acquired new buildings or land for expansion. Twenty percent (seasonally adjusted) plan capital outlays in the next six months, down seven points from December. This index component had the greatest impact on this month’s Index decline.
A net negative 14% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down one point from December. The net percent of owners expecting higher real sales volumes fell two points from December’s highest reading since January 2020 to a net 20% (seasonally adjusted).
The net percent of owners reporting inventory gains fell six points to a net negative 6%, seasonally adjusted. Not seasonally adjusted, 9% reported increases in stocks and 21% reported reductions.
A net negative 1% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in January, unchanged from December. A net 0% (seasonally adjusted) of owners plan inventory investment in the coming months, down six points from December’s highest reading since December 2021.
The net percent of owners raising average selling prices fell two points from December to a net 22% seasonally adjusted. Eighteen percent of owners reported that inflation was their single most important problem in operating their business, down two points from December and matching labor quality as the top issue. The last time it was this low was November 2021. Unadjusted, 9% of owners reported lower average selling prices and 30% reported higher average prices.
Price hikes were the most frequent in the finance (47% higher, 6% lower), retail (35% higher, 6% lower), wholesale (34% higher, 4% lower), and professional services (30% higher, 3% lower) sectors. Seasonally adjusted, a net 26% plan price hikes in January.
The frequency of reports of positive profit trends was a net negative 25% (seasonally adjusted), one point less negative than in December. Among owners reporting lower profits, 34% blamed weaker sales, 17% cited usual seasonal change, 10% blamed the rise in the cost of materials, and 9% cited labor costs. For owners reporting higher profits, 49% credited sales volumes, 24% cited usual seasonal change, and 11% cited higher selling prices.
Three percent of owners reported that all their borrowing needs were not satisfied, up one point from December. Twenty-five percent reported all credit needs met and 62% said they were not interested in a loan. A net 3% reported their last loan was harder to get than in previous attempts. The last time this reading was this low was in June 2022. Three percent of owners reported that financing was their top business problem in January, down one point from December. A net 3% reported paying a higher rate on their most recent loan, up two points from December’s lowest reading since September 2021.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in January 2025.
Labor Markets
In January, 35 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, unchanged from December. Twenty-nine percent have openings for skilled workers (unchanged) and 10 percent have openings for unskilled labor (down 3 points). While reports of too few unskilled applicants declined, shortages of skilled applicants persist. The difficulty in filling open positions is particularly acute in the transportation, construction, and manufacturing industries. Job openings in construction were up 4 points from last month and down 2 points from the prior year. Openings were the lowest in the agriculture and finance industries. A seasonally adjusted net 18 percent of owners plan to create new jobs in the next three months, down 1 point from December. Job creation plans are below the levels seen the last time the economy experienced solid growth although still in firm territory historically. Overall, 52 percent reported hiring or trying to hire in January, down 3 points from December. Forty-seven percent (90 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (down 2 points). Twenty-four percent of owners reported few qualified applicants for their open positions (down 4 points) and 23 percent reported none (up 2 points). The percent of small business owners reporting labor quality as the single most important problem for business fell 1 point from December to 18 percent. Labor costs reported as the single most important problem for business owners fell 2 points to 9 percent, 4 points below the highest reading of 13 percent reached in December 2021.
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Capitol Spending
Fifty-eight percent reported capital outlays in the last six months, up 2 points from December. Unions are demanding job protection from innovation including AI, but only 6 percent of the private sector workforce is unionized (33 percent in the public sector) so progress on productivity enhancement depends on the non-union private sector employers and their investments in new technologies. Investments increase output per hour of work, the key to improved compensation. Of those making expenditures, 41 percent reported spending on new equipment (up 4 points), 24 percent acquired vehicles (unchanged), and 16 percent improved or expanded facilities (unchanged). Twelve percent spent money on new fixtures and furniture (up 1 point) and 5 percent acquired new buildings or land for expansion (down 2 points). Twenty percent (seasonally adjusted) plan capital outlays in the next six months, down 7 points from December. This Index component had the greatest impact on this month’s Index decline.
Inflation
The net percent of owners raising average selling prices fell 2 points from December to a net 22 percent seasonally adjusted. Eighteen percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), down 2 points from December, and matching labor quality as the top issue. The last time it was this low was November 2021. Unadjusted, 9 percent (down 2 points) reported lower average selling prices and 30 percent (down 1 point) reported higher average prices. Price hikes were most frequent in the finance (47 percent higher, 6 percent lower), retail (35 percent higher, 6 percent lower), wholesale (34 percent higher, 4 percent lower), and professional services (30 percent higher, 3 percent lower) sectors. Seasonally adjusted, a net 26 percent plan price hikes in January (down 2 points).
Credit Markets
Three percent of owners reported that all their borrowing needs were not satisfied, up 1 point from December. Twenty-five percent reported all credit needs met (up 1 point) and 62 percent said they were not interested in a loan (down 3 points). A net 3 percent reported their last loan was harder to get than in previous attempts (down 1 point). The last time this reading was this low was June 2022. Three percent reported that financing was their top business problem in January (down 1 point). A net 3 percent of owners reported paying a higher rate on their most recent loan, up 2 points from December’s lowest reading since September 2021. The average rate paid on short maturity loans was 9.4 percent, up 0.7 of a point from December. Twenty-seven percent of all owners reported borrowing on a regular basis, up 2 points from December.
Compensation and Earnings
Seasonally adjusted, a net 33 percent reported raising compensation, up 4 points from December’s lowest reading since March 2021. A seasonally adjusted net 20 percent plan to raise compensation in the next three months, down 4 points from December. The frequency of reports of positive profit trends was a net negative 25 percent (seasonally adjusted), 1 point less negative than December. The last time earnings changes were this high was December 2023. Among owners reporting lower profits, 34 percent blamed weaker sales, 17 percent cited usual seasonal change, 10 percent blamed the rise in the cost of materials, and 9 percent cited labor costs. For owners reporting higher profits, 49 percent credited sales volumes, 24 percent cited usual seasonal change, and 11 percent cited higher selling prices.
Sales and Inventories
A net negative 14 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 1 point from December. The net percent of owners expecting higher real sales volumes fell 2 points from December’s highest reading since January 2020 to a net 20 percent (seasonally adjusted). The net percent of owners reporting inventory gains fell 6 points to a net negative 6 percent (seasonally adjusted). Not seasonally adjusted, 9 percent reported increases in stocks (down 4 points) and 21 percent reported reductions (up 7 points). A net negative 1 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in January, unchanged from December. A net 0 percent (seasonally adjusted) of owners plan inventory investment in the coming months, down 6 points from December’s highest reading since December 2021.
Commentary
Small business owners greeted the new year with a surge in optimism. Seventeen percent (seasonally adjusted) now view the current period as a good time to expand substantially, up from just 4 percent a few months ago. A seasonally adjusted net 20 percent expect real sales gains compared to a net negative 18 percent a few months earlier. Better business conditions were expected by a seasonally adjusted net 47 percent, up from a net negative 13 percent just four months ago (net of negative responses). Reports of unfilled job openings and plans to hire to fill them remained historically high. Owners have been unsuccessful filling them over the past four years, finding few qualified applicants while government related hiring soared. Tough competition.
President Trump hit the ground running, and small business owners are anxiously watching with expectations of preserving the TCJA tax cuts and a reduction in regulations, especially those that increase the cost of production but produce little benefit to users and consumers. New homes constructed are not allowed to install natural gas capabilities in some locations, there’s a push to transition to electric cars, and all this puts more pressure on the electricity grid which is already unable to handle the demand for electricity. The electricity demands of AI are going to be huge, exacerbating the problem. Policies must be promulgated that make sense given the capabilities of the economy and businesses to deliver, centered on relying on the private sector to find and implement solutions.
The economy is still grappling with disasters, two huge hurricanes, and California fires. Some California politicians think oil companies should pay for restoration. Higher oil taxes to provide the needed funds would spread the cost of the fires over all consumers, and reward the poor land management policies of the state government. North Carlina is still a mess and now snowed under. Government aid is tied up in the transition in D.C. Florida had two major hits in two weeks but seems to be coming back. A lot of money will be spent on reconstruction, but that is just replacing assets lost, not adding new capacity. But it will positively impact GDP and employment when it occurs.
The economy enters 2025 in decent condition but with a slowing momentum. The widely predicted recession in 2024 never showed up due to heavy government spending and hiring, and consumer spending financed with higher debt levels. The inflation rate eased from its 9 percent rate in 2022, falling to just below 3 percent, but still above the Fed’s target of 2 percent. In Trump’s last administration, the rate averaged 1.5 percent, powered by low energy and oil prices, something Trump seems to be planning again. The Fed left its policy rate unchanged in January (Britain cut theirs) at 4.5-4.75 percent, and the 10-year Treasury bond has been rising in yield, not good for credit costs. So, the stage is set, players are taking positions, we’ll see how this story develops.
