The NFIB small business optimism index is down 2.3 points to 102.8 in January from December but it remains buoyant versus 93.7 in October and 89.9 a year ago as business owners much prefer the outlook for business under the Trump administration. The January number at 102.8 is also the third consecutive month above the 51-year average of 98 after 34 months below the average.

The gains in the index since November reflect a burst of optimism after the outcome of the US presidential election. That optimism about the economic outlook remains intact as a net 47 percent of survey respondents see a better 6-month outlook in January versus a net 52 percent in December and a gloomy net negative 38 percent in January 2024.

However, the uncertainty index rose again and remains elevated at 100 in January versus 86 in December, although it has fallen since the record high of 110 in October.

The index is down in part because the net percentage of respondents planning capital expenditures declined to 20 percent in January from 27 percent in December and versus 23 percent a year ago. The other two components contributing to the decline from December are plans to increase inventories and the net percentage of respondents expecting the economy to improve, but both remain at historically strong levels.

Among January survey respondents, inflation and quality/availability of labor are tied as the most important problem facing small business but both are down as a share of responses.

Optimism about the economy under Trump lifted the index by 3.4 points to 105.1 in December, its highest since October 2018. For January, the index is expected to correct slightly to a still upbeat 104.7, well above its long-time average of 98.0.

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.