U.S. small business optimism surges in December, accompanies high uncertainty level

The U.S. small business optimism surged in December. The NFIB’s small business optimism index rose 7.3 points to 105.8 in December, the third straight monthly gain and exceeding expectations of a modest gain to 99.5. This is the highest level seen since 2004. Looking at the details of the report, it was widely encouraging as seven of the ten subcomponents rose in December, whereas one stayed the same and two dropped.

Two of the worst-performing sub-indicators in 2016 registered great rebounds in the month. The ratio of companies anticipating the U.S. economy to rebound rose 38 points to 50 percent, whereas the share of companies expecting higher real sales was up 20 points to 31 percent. Capital outlay plans also rebounded 5 points to 29 percent.

Labor market indicators stayed quite supportive. Even though unfilled job openings dropped two points, they stayed quite elevated at 29 percent, whereas the share of companies intending to raise employment was up 1 point to 16 percent, the highest since January 2007.

Earnings metrics also came in positive, with the ratio of firms increasing and planning to raise worker compensation reversing November’s decline and increasing five points apiece. The uncertainty sub-index dropped 15 points but continues to be elevated with a reading of 85, noted TD Economics in a research report.

In all, this was quite a strong report, with the improvement in the economic outlook the most encouraging development. This was stimulated by vows to cut taxes and reduce regulation. However, the sharp rise in sentiment post elections continues to come with an increased level of uncertainty, with readings more than 85 in the sub-index just ever recorded in the past few months. Further lucidity might continue to come up as the new administration starts to implement its vision beginning later in January.

“Keeping up with the recent momentum in optimism will depend on how quickly and how much the new administration can deliver on its pledges, but is likely to prove a challenge judging by the typically slow nature of the political process”, added TD Economics.

At 05:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 56.8414. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex