Small business optimism falls back slightly in January

Summary

Small business sentiment weakens, but still improved post election

The NFIB Small Business Optimism Index dipped 2.3 points in January following surges in November and December. Despite the setback, the index remains far above its prevailing level over the past three years. Most of the recent improvement, which coincided with the 2024 election outcome, was driven by the “softer” index components surrounding economic expectations and credit conditions. The “hard” components of the index, e.g. job creation plans, job openings and capex plans, remain muted compared to pre-pandemic norms. On the upside, labor market deterioration appears to have stalled amid a sideways movement in job openings and slight improvement in hiring plans. On the downside, small businesses are experiencing little relief on the inflation front. Owners also expressed a pickup in general uncertainty, possibly driven by recent volatility in tariff announcements.

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