Small business owners across America are displaying remarkable confidence heading into 2026, despite lingering economic pressures. The National Federation of Independent Business (NFIB) Small Business Optimism Index surged to 103.7 in December 2025, marking its highest reading since February 2020, just before the pandemic upended the global economy.
Having covered small business trends for nearly two decades, I’ve observed few moments when Main Street sentiment rebounded this dramatically amid mixed economic signals. The 2.8-point increase from November represents the fourth consecutive monthly gain and suggests small businesses are finally shaking off the uncertainty that has characterized much of the post-pandemic recovery.
“Small business owners are ending the year on a decidedly positive note,” said Bill Dunkelberg, NFIB’s Chief Economist. “While challenges remain, particularly regarding inflation and labor quality, entrepreneurs are increasingly confident about future business conditions and sales expectations.”
The monthly survey, based on responses from approximately 650 small business owners, revealed several encouraging trends. Eight of the ten index components improved, with expectations for better business conditions showing the most significant gain, jumping 12 percentage points. This marks a remarkable shift in outlook compared to the persistent pessimism that dominated much of 2024.
My conversations with small business owners in the Northeast financial corridor reflect this changing sentiment. Sarah Jenkins, who operates a specialty retail shop in Connecticut, told me last week that after years of caution, she’s finally moving forward with expansion plans. “For the first time since 2019, I feel like I can make long-term investments without constantly worrying about the next crisis,” she explained.
The Federal Reserve’s recent shift in monetary policy appears to be a significant factor driving this optimism. After maintaining elevated interest rates throughout most of 2025, the central bank began its easing cycle in September with two consecutive quarter-point cuts. The Fed’s December meeting minutes, released last week, indicated further reductions may be forthcoming if inflation continues its downward trend.
According to data from the Bureau of Labor Statistics, inflation has moderated to 2.6% annually as of November 2025, approaching the Fed’s 2% target. This cooling has provided small businesses with more breathing room for expansion and hiring, though inflation remains their top concern in the NFIB survey for the 23rd consecutive month.
The jobs picture continues to present a mixed bag for small enterprises. While 40% of owners reported job openings they couldn’t fill—down 3 points from November—the quality of labor remains a significant challenge. Nearly one-third of respondents cited difficulty finding qualified workers as their single most important problem, second only to inflation.
“We’re seeing a fascinating dichotomy in the labor market right now,” explained Michael Gapen, chief U.S. economist at Bank of America Securities. “Unemployment has ticked up slightly to 4.3%, but small businesses still struggle to find workers with the right skills, particularly in technical and service roles.”
The survey also revealed strengthening capital expenditure plans, with 27% of owners planning to make investments in the next three to six months. This represents a 4-point increase from November and suggests growing confidence in future returns on business investments. Equipment replacements and technology upgrades led planned spending categories, followed by facility expansions.
Despite the overall positive trajectory, regional variations remain significant. According to supplementary NFIB data I reviewed, small businesses in the South and Midwest reported stronger optimism than their counterparts in coastal states, where higher operating costs continue to pressure profit margins.
Energy costs, which have stabilized in recent months with oil hovering around $72 per barrel, have provided additional relief. This stability has helped small businesses better manage transportation and utility expenses—a welcome development after the price volatility that characterized much of 2024.
Credit conditions have also improved marginally, though access to capital remains challenging for some sectors. Twenty-three percent of owners reported that all their credit needs were met, up 2 points from November. Only 3% reported that their borrowing needs were not satisfied, the lowest reading in 18 months.
The inventory picture has normalized considerably, with the net percentage of owners planning to add to inventory rising to 4%, up 3 points from November. This suggests businesses are increasingly confident about future sales and are preparing inventory accordingly after years of supply chain disruptions.
“We’ve finally reached the point where inventory management feels somewhat predictable again,” remarked Thomas Wilson, owner of a manufacturing supply company in Ohio during a recent industry conference I attended. “For the first time since the pandemic, we can make stocking decisions based on actual demand patterns rather than fear of shortages.”
Looking ahead, small business owners express cautious optimism about sales growth, with a net 12% expecting higher sales volumes in the next three months. While positive, this figure remains below historical averages during economic expansions, suggesting lingering uncertainty.
As the economy navigates this transitional period, small businesses appear to be finding their footing after years of unprecedented challenges. Their growing confidence may prove to be a leading indicator for broader economic resilience as we enter 2026.
The NFIB will release its next Small Business Economic Trends report in early February, providing further insight into whether this optimism persists into the new year.
