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First Cut: December slip in NFIB Small Business Optimism Index reflects greater uncertainty

The NFIB Small Business Optimism Index slipped 2 points to 102.7 in December as businesses were more concerned about current conditions in the economy. However, the index level remained one of moderate optimism about present activity and future prospects for small businesses. The change is one well within the sort of normal month-to-month variation seen for this index and should not be interpreted as any sort of significant downshift. What might be said of the index performance over the course of 2019 is that it is off the sustained levels of 2017 and 2018 and is more sensitive to uncertainties and worries about risks to the outlook from geopolitical developments. The NFIB said its uncertainty index was up 8 points to 80 in December. Nonetheless, businesses are forging ahead, if with caution.

Two index components were higher, six were lower, and two were unchanged in December.

The two gains in December were forward looking. Expectations-for-the-economy-to-improve was up 3 points to 16% and more in line with anticipation of firming expansion. Sales-expectations was also up 3 points to 16% and consistent with modest increases in sales.

The largest decline was in the earnings-trend component which fell 10 points in December to -8%. However, this was unwinding the 10 point increase in November to 2%. Discounting that, while the earnings trend in December is on the low side of readings for 2019, it is a trend-like number.

The next largest decline was in current-inventory-satisfaction which declined 5 points to -4% in December. It was similar to the earnings-trend in that the decrease reversed a 5 point increase in November to 1% and returned the component near where it has been for most of 2019. The component for now-is-a-good-time-to-expand was down 4 points to 25%, only partially retracing a 6 point gain to 29% in November and finishing the year on a mildly upbeat note that has sounded through much of the year.

The components related to the labor market were reported on January 9. It bears repeating that while the December level of current-jobs was down 5 points to 33%, it is still strong in the historical context. Plans-to-increase-employment was off 2 points to 19% in December but on trend with the rest of 2019. The index for actual compensation was down a scant 1 point to 29%, outpacing planned compensation which fell 2 points to 24%.

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