The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for December came in at 104.4, down 0.4 from the previous month. The index is at the 92nd percentile in this series. Today's number came in above the Investing.com forecast of 103.6.

Here is an excerpt from the opening summary of the news release.

he NFIB Small Business Optimism Index remained basically unchanged in December, drifting down 0.4 points to 104.4, according to the report released today. Unfilled jobs and the lack of qualified applicants continue to be a primary driver, with job openings setting a record high and job creation plans strengthening. Reports of higher worker compensation remained near record levels and inventory investment plans surged. Expected real sales growth and expected business conditions in the next six months, however, accounted for the modest decline in the Index.

“Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects, said NFIB President and CEO Juanita D. Duggan. “Two of every three of these new jobs are historically created by the small business half of the economy, so it will be Main Street that will continue to drive economic growth.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

Here is a closer look at the indicator since the turn of the century.

The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

Here are some excerpts from the report.

Labor Markets

Job creation was solid in December with a net addition of 0.25 workers per firm (including those making no change in employment), up from 0.19 in November and the best reading since July.

Inflation

How effective has the Fed's monetary policy been in lifting inflation to its two percent target rate?

Seasonally adjusted, a net 25 percent plan price hikes (down 4 points). The net percent of owners raising average selling prices rose 1 point to a net 17 percent, also seasonally adjusted. Forty-eight percent of the firms in the wholesale trades reported raising, and 29 percent of the construction and retail firms hiked prices. In agriculture, 31 percent reported lower average prices (11 percent raised).

Credit Markets

Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?

Four percent of owners reported that all their borrowing needs were not satisfied, up 1 point but historically very low. Thirty-two percent reported all credit needs met (unchanged) and 50 percent said they were not interested in a loan, up 3 points. Five percent reported their last loan was harder to get than the previous one, unchanged and historically low.

NFIB Commentary

This month's "Commentary" section includes the following observations and opinions:

Critics of the Federal Reserve are popping up everywhere. They say that the Federal Reserve is not paying attention to “what financial markets are telling” us about the economy. However, the stock market does not reflect the entire economy. The small business sector represents the other half and it continues its two-year run of record high performance levels, an important consideration. Critics have forgotten what impact zero interest rates have had. If investors can’t earn anything in bonds or savings accounts, they put their money into stocks and real estate, bidding up those prices. When interest rates start to normalize (i.e. rise), other investment options become more attractive.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.