HORAN Capital Advisors

Small Business Optimism Ticks Lower

 December 8 2020     David Templeton

The NFIB's November Small Business Optimism Index declined 2.6 points to 101.4. As NFIB notes in their report the Index level is at a historically high level with the 47-year average reading equaling 98. Below are a few key findings in the report:

  • "Earnings trends over the past 3 months declined 4 points to a net negative 7% reporting higher earnings quarter over quarter."
  • "Six percent of owners cited labor costs as their top business problem (down 2 points), but 24% said that labor quality was their top business problem (up 2 points)
  • "A net 24% of owners reported raising compensation, and a net 20% plan to do so in the coming months.
  • "The Uncertainty Index hit a record high of 100 in November 2016. The Index reached 98 in October this year, but fell 8 points to 90 in November. There are still major uncertainties to be resolved, most important the Covid-19 crisis and the Georgia election which will shape political control in the Senate."

Small businesses are an important driver of hiring, hence, future economic activity. The 19 point decrease in businesses expecting an improved economy versus worsening one to 8% is worth paying attention to in the coming couple of months. With the Optimism Index remaining at a high level, a reversal of this past months decline would be impactful for economic growth expectations going forward.