In December, 35 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 1 point from November. Twenty-nine percent have openings for skilled workers (down 1 point) and 13 percent have openings for unskilled labor (unchanged). The difficulty in filling open positions is particularly acute in transportation, construction, and manufacturing industries. Job openings in construction were down 13 points from last month and down 17 points from the prior year, with 41 percent reporting a job opening they cannot fill. Openings were the lowest in the agriculture and finance industries. A seasonally adjusted net 19 percent of owners plan to create new jobs in the next three months, up 1 point from November. The last time hiring plans were this high was May 2023. Overall, 55 percent reported hiring or trying to hire in December, unchanged from November. Forty-nine percent (89 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (up 1 point). Twentyeight percent of owners reported few qualified applicants for their open positions (down 1 point) and 21 percent reported none (up 2 points). The percent of small business owners reporting labor quality as the single most important problem for business was unchanged from November at 19 percent. Labor costs reported as the single most important problem for business owners was unchanged from November at 11 percent, only 2 points below the highest reading of 13 percent reached in December 2021.

Fifty-six percent reported capital outlays in the last six months, up 2 points from November. Of those making expenditures, 37 percent reported spending on new equipment (down 2 points), 24 percent acquired vehicles (up 2 points), and 16 percent improved or expanded facilities (up 2 points). Eleven percent spent money on new fixtures and furniture (down 1 point) and 7 percent acquired new buildings or land for expansion (unchanged). Twenty-seven percent (seasonally adjusted) plan capital outlays in the next six months, down 1 point from November’s highest reading since January 2022.

The net percent of owners raising average selling prices was unchanged from November at a net 24 percent seasonally adjusted. Twenty percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), unchanged from November and leading labor quality as the top issue by 1 point. Unadjusted, 11 percent (unchanged) reported lower average selling prices and 31 percent (down 1 point) reported higher average prices. Price hikes were most frequent in the finance (56 percent higher, 15 percent lower), retail (38 percent higher, 6 percent lower), construction (30 percent higher, 9 percent lower), and transportation (30 percent higher, 9 percent lower) sectors. Seasonally adjusted, a net 28 percent plan price hikes in December (unchanged).

Two percent of owners reported that all their borrowing needs were not satisfied, down 2 points from November. Twenty-four percent reported all credit needs met (down 2 points) and 65 percent said they were not interested in a loan (up 3 points). A net 4 percent reported their last loan was harder to get than in previous attempts (down 3 points). Four percent reported that financing was their top business problem in December (down 1 point). A net 1 percent of owners reported paying a higher rate on their most recent loan, down 4 points from November and the lowest reading since September 2021. The average rate paid on short maturity loans was 8.7 percent, down 0.1 of a point from November. Twenty-five percent of all owners reported borrowing on a regular basis, down 3 points from November.

Seasonally adjusted, a net 29 percent reported raising compensation, down 3 points from November and the lowest reading since March 2021. A seasonally adjusted net 24 percent plan to raise compensation in the next three months, down 4 points from November. The frequency of reports of positive profit trends was a net negative 26 percent (seasonally adjusted), unchanged from November. Among owners reporting lower profits, 35 percent blamed weaker sales, 13 percent cited usual seasonal change, 12 percent blamed the rise in the cost of materials, and 11 percent cited labor costs. For owners reporting higher profits, 51 percent credited sales volumes, 22 percent cited usual seasonal change, and 7 percent cited higher selling prices.

A net negative 13 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from November. The net percent of owners expecting higher real sales volumes rose 8 points to a net 22 percent (seasonally adjusted). This is the highest reading since January 2020. The net percent of owners reporting inventory gains rose 7 points to a net 0 percent (seasonally adjusted). Not seasonally adjusted, 13 percent reported increases in stocks (up 3 points) and 14 percent reported reductions (down 2 points). A net negative 1 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in December, up 1 point from November (e.g., inventory stocks are too large relative to expected sales). A net 6 percent (seasonally adjusted) of owners plan inventory investment in the coming months, up 5 points from November and the highest reading since December 2021.

For the first 10 months of 2016, the Optimism Index averaged 94. Then there was the presidential election in November and the Index soared to 105.9. From January 2022 to October 2024, the Index averaged 94 (the 51-year average is 98), a poor showing. But in December 2024, the Index surged to 105.1, very similar to 2016. The years under Trump delivered, solid growth, low unemployment, and inflation under 2 percent. But results like that are not guaranteed by solid optimism. Sound economic policies and luck are needed to produce good economic outcomes.

Based on election polls, the top concern of voters was inflation. Currently, inflation is under 3 percent, but above the 2 percent Fed target. More likely the issue is the 20 percent increase in selling prices (CPI) since 2020, consumers want prices to fall, not continue to rise even if at a very low inflation rate. Small business owners share the same sentiment, high prices (costs) are the concern, not the rate of price increases. Inflation remains the top business problem, just ahead of the quality of labor in second place. The cost of energy impacts virtually all products and was a major factor impacting the good inflation experience from 2016-2020. Policies that expand energy production and lower energy prices would contribute to lower inflation and even falling prices.

Taxes will be a top policy focus as well, with a promise to preserve the TCJA tax cuts passed in 2017. This is a top concern for small business owners and important tax-related legislation will be an early agenda item for the new administration. Deregulation will also be a welcomed reversal from the previous administration’s agenda that caused much consternation among the small business community.

It will be a noisy first year, with many distractions including the wars involving Israel and Ukraine, talk about the Panama Canal and Greenland, and relations with Russia and China. Domestically, there are plenty of headaches including the border, crime, and activist activities. Natural disasters (fires, floods, storms) will continue to demand attention. The Fed will likely cut rates by 50 basis points during the year. All this with a new team of managers. It will be a bumpy ride.