Data Release: Small business optimism gains some ground in December
- The NFIB’s small business optimism index rose 0.4 points to 95.2 in December – recovering some of the ground lost in the prior month. Despite this, the index remained more than 5 points below the year-ago level.
- Looking beneath the headline print, the details of the report were mixed. Six of the ten subcomponents rose on the month, three declined and one remained unchanged.
- Expectations about an improvement in the economy and higher real sales typically move in the same direction, but they diverged markedly in December, with the former shedding 7 points and the latter gaining 9 points on the month.
- Labor market indicators were broadly encouraging with plans to increase hiring gaining 3 points and the share of firms with 'positions not able to fill' up 1 point – both remain near post-crisis highs. Moreover, the net share of firms planning to raise worker compensation remained unchanged for the second consecutive month at 20% – the highest level since 2006.
- Today's data release provides a complete picture for 2015, with average small business confidence up half a point from the prior year. Small business confidence should continue to improve over the next year as businesses see the benefit of lower energy costs and an improving domestic economy.
- Most encouragingly, labor market subcomponents are chiming the same tune as the payrolls reports. Small businesses are not only looking to increase employment, but also worker compensation. This sends a reassuring signal to the Fed in support of the gradual tightening cycle with the next hike expected to come as early as March.
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