by Calculated Risk on 1/10/2012 08:10:00 AM

From the National Federation of Independent Business (NFIB): Small Business Confidence Inches Upward: While Economic Winter Continues, It Appears to be Getting Warmer

For the second consecutive month, small-business optimism rose 1.8 points, according to the National Federation of Independent Business (NFIB) Optimism Index; the small but notable gain settled the December reading at 93.8. This represents the fourth monthly increase since September, suggesting that the rising trend might stick. However, a comparative look at early 2011 shows the Index rising in the early part of the year, only to decline in March and April.

“Much of December’s gain resulted from the fact that concerns about business conditions over the next six months have subsided and because many small-business owners have improved their expectations for real sales gains in the coming months,” said NFIB Chief Economist Bill Dunkelberg.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image.

The first graph shows the small business optimism index since 1986. The index increased to 93.8 in December from 92.0 in November. This is the fourth increase in a row after declining for six consecutive months.

The second graph shows the net hiring plans for the next three months.

Hiring plans declined slightly in December, but the trend is up.

According to NFIB: “Unfortunately, December’s jobs numbers fizzled, with the net change in employment per firm turning negative again; small businesses lost an average .15 workers per firm. ... The good news is that the number of owners cutting jobs has ‘normalized’. In the past several months, reports of those cutting workers have been at the lowest levels since the recession started in December 2007. ... Over the next three months ... a seasonally adjusted net 6 percent of owners planning to create new jobs, a 1 point decline but still one of the strongest readings since September 2008."

The optimism index declined sharply in August due to the debt ceiling debate and has now rebounded to about the same level as early in 2011. This index is still low - probably due to a combination of sluggish growth, and the high concentration of real estate related companies in the index.