The NFIB small business optimism index is up 3.4 points to 105.1 in December and the highest since 107.4 in October 2018. The December index is above the consensus of 101.3 in the Econoday survey of forecasters. It is the second month in a row over the 51-year average of 98 after 34 months below the average. The gains in the index reflect a burst of optimism after the outcome of the US presidential election. However, the uncertainty index remains elevated at 86 in December, although it has fallen since the record high of 110 in October.

For a second month in a row, the index is on the rise due mainly to two components. In December, expectations for the economy to improve is up 16 points to 52 percent, and echoes the 38 point jump to 50 percent in December 2016 after the first election of Donald Trump to the presidency. Expectations for higher sales are up 8 points to 22 percent in December. The two components with decreases provide little offset with minor 1 point declines.

Among December survey respondents, 20 percent report that inflation remains their single most important problem, the same as in November. Another 19 percent report quality of labor is their single most important problem, also the same as in the prior month. Both have fallen as a share of responses.

Business confidence surged after Republicans swept to power in US elections in November. Forecasts call for a slight correction to 101.3 in December from 101.7 in November, which was up sharply from 93.7 in October.

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.