The NFIB small business optimism index rose 0.5 points to 90.3 in January after 89.8 in December. This matches the consensus in an Econoday survey of forecasters. The report notes that although inflation remains the"single most important problem" for small business operators, it is starting to ease. The index has been below the 49-year average of 98 for 13 months in a row. The uncertainty index rose 5 points to 76 in January, its highest since 76 in July 2021 and 83 in June 2021.

Despite the high levels of uncertainty, the data are narrowly more positive in January. Among index components, six are higher and four are lower. The largest increase is expectations for the economy to improve which is up 6 points to a net minus 45 percent. This remains deeply negative, but is the highest reading since minus 35 percent in February 2022 before the invasion of Ukraine by Russia and the acceleration in inflation that resulted. The expected earnings trend is up 4 points to minus 26 percent in January and current job openings is up 4 points to 45 percent. There was a small uptick of 2 points in plans to increase employment to 19 percent. The largest negatives are 4 point declines in plans to increase inventories to minus 8 percent and expectations for higher sales to minus 14 percent.

Increases by the FOMC to short term rates have had a negative impact on credit conditions for small businesses, but these appear to have stabilized. The component for credit conditions is little changed in January, up 1 point to minus 8 percent after the near-term bottom of minus 9 percent in December. Costlier borrowing is anticipated, or at least that rates are not coming down soon.

The small business optimism index has been below the historical average of 98 for 12 months in a row. January's consensus is 90.3 versus 89.8 in December.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.