Small business optimism reverses course in January

Summary

The NFIB's Small Business Optimism index fell slightly in January, ending a two-month streak of gains. The share of firms expecting the economy to improve declined slightly, with hiring and capex plans also edging lower. Encouragingly, the share of small firms expecting sales to strengthen rebounded to the highest level since early 2025.

In sum, dimming small business sentiment largely tracks with what we are seeing across the spectrum of recent macroeconomic data. Real GDP is still expanding at a sturdy rate with promising signs that inflation is no longer meaningfully accelerating. That said, the pace of hiring at small businesses (a key driver of overall employment growth) has downshifted in recent months, which suggests the labor market is still stuck in a state of malaise.

Small businesses downshift hiring plans

The share of small firms planning to increase headcounts over the next three months has eased gradually over the past several months. The trend in hard-to-fill job openings has followed a similar pattern, with vacancies falling to a new cycle low.

Capex

Capital spending among small firms appears to have picked up over the back half of 2025, with the share of owners reporting an increase in outlays over the past six months rising to the highest point since November 2023. The increased in capex was largely directed toward new equipment, while spending on vehicles, facilities and new structures/land pulled back. Plans for additional investment over the next six months ticked down, however.

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