Small Business Optimism Turns Decidedly Negative

The NFIB Small Business Optimism Index turned decidedly negative in December. The index fell 5.5 points to 95.9 and is below the index's long run average of 98. NFIB reported 9 of the 10 index components declined. The survey report notes, "The drop in small business optimism was historically very large...Most of the decline was a result of substantial weakness in the outlook for sales and business conditions in 2021 which brings new Covid threats and the uncertainty about economic policy with a new administration in Washington." Small business owners excepting better business conditions over the next six months came in at minus 16, a 24 point decline from the month earlier and the second largest drop since 1986.

This negative view of the economy by small businesses is at a level seen prior to the start of recessionary periods. Importantly, small businesses are a critical component to job and economic growth as small businesses account for nearly 50% of the private sector workforce and account for two-thirds of net new jobs. This is a sentiment survey so it can change quickly. Given the strength in some of the hard economic data it will be important to see this index reverse its negative bias in the next month or two.