US small business optimism gains some ground in December

The NFIB's small business optimism index rose 0.4 points to 95.2 in December - recovering some of the ground lost in the prior month. Despite this, the index remained more than 5 points below the year-ago level.

Looking beneath the headline print, the details of the report were mixed. Six of the ten subcomponents rose on the month, three declined and one remained unchanged.

Expectations about an improvement in the economy and higher real sales typically move in the same direction, but they diverged markedly in December, with the former shedding 7 points and the latter gaining 9 points on the month.

Labor market indicators were broadly encouraging with plans to increase hiring gaining 3 points and the share of firms with 'positions not able to fill' up 1 point - both remain near post-crisis highs. Moreover, the net share of firms planning to raise worker compensation remained unchanged for the second consecutive month at 20% - the highest level since 2006.

Today's data release provides a complete picture for 2015, with average small business confidence up half a point from the prior year. Small business confidence should continue to improve over the next year as businesses see the benefit of lower energy costs and an improving domestic economy.

"Most encouragingly, labor market subcomponents are chiming the same tune as the payrolls reports. Small businesses are not only looking to increase employment, but also worker compensation. This sends a reassuring signal to the Fed in support of the gradual tightening cycle with the next hike expected to come as early as March",says TD Economics in a research note.