Small business confidence rose for the second consecutive month in December 2025, with the National Federation of Independent Business (NFIB) Optimism Index climbing to 99.5—its highest reading since August and comfortably above its 52-year historical average of 98. The results suggest America's entrepreneurs are entering 2026 with cautious optimism, though emerging concerns about the tax environment are tempering enthusiasm.

Breaking Down the Numbers

The December survey revealed a mixed but generally positive picture for Main Street. Of the ten components that comprise the Optimism Index, two increased, three decreased, and five remained unchanged from November. The primary driver of the monthly gain was a nine-point surge in expectations for improved economic conditions, with 24% of business owners now anticipating a better economy in the months ahead.

Current earnings trends also showed improvement, rising three points to negative 20%—still underwater but moving in the right direction. However, expectations for higher real sales pulled back five points to 10%, and capital outlay plans recorded a modest decline, suggesting some businesses remain hesitant to commit to major investments.

"2025 ended with a further increase in small-business optimism. While Main Street business-owners remain concerned about taxes, they anticipate favorable economic conditions in 2026 due to waning cost-pressures, easing labor challenges, and an increase in capital investments."

— Bill Dunkelberg, NFIB Chief Economist

Tax Concerns Spike to Four-Year High

Perhaps the most significant finding in the December survey was the dramatic increase in tax-related anxiety. A full 20% of small business owners cited taxes as their most important problem—up six percentage points from November and the highest reading since May 2021.

This surge in tax concerns comes as businesses grapple with the implications of the One Big Beautiful Bill Act, which extended the 2017 tax cuts while introducing new provisions that have created uncertainty for some business owners. The Congressional Budget Office projects the legislation will expand federal debt by $3.4 trillion over the next decade, raising questions about potential future tax increases to address the deficit.

Uncertainty Index Plummets

In a notably positive development, the NFIB Uncertainty Index fell seven points from November to 84, reaching its lowest level since June 2024. This decline suggests that despite ongoing concerns about specific issues like taxes, business owners are gaining clarity about the overall economic and policy environment.

Reduced uncertainty typically correlates with increased business investment and hiring, as entrepreneurs become more comfortable making long-term commitments when they have better visibility into future conditions.

Price Increase Plans Remain Elevated

The survey also revealed that over half of small business leaders—54%—are planning to increase prices in the next three months. This finding aligns with broader inflation concerns and reflects the ongoing challenge of managing costs in an environment where input prices, particularly for imported goods subject to tariffs, remain elevated.

For consumers, this signals that inflationary pressures may persist at the retail level even as headline inflation measures moderate, as businesses continue working to restore margins compressed during the high-inflation period of 2022-2024.

Regional and Industry Variations

The aggregate numbers mask significant variations across regions and industries. Businesses in sectors benefiting from reshoring trends and domestic manufacturing incentives report notably higher optimism than those more dependent on imports or facing direct competition from foreign producers.

Similarly, businesses in states with lower tax burdens and less regulatory complexity tend to express more positive outlooks than their counterparts in higher-cost jurisdictions, highlighting how state and local policy environments continue to influence business formation and expansion decisions.

Labor Market Dynamics Ease

One area where small businesses have seen meaningful improvement is the labor market. After years of intense competition for workers that drove up wages and constrained growth, many business owners report that hiring has become somewhat easier. This shift reflects both an increase in labor force participation and moderating demand as some businesses have pulled back on expansion plans.

The easing of labor challenges allows businesses to focus more attention on other operational priorities and reduces the pressure to offer wage increases that were common during the acute labor shortage period.

Looking Ahead to 2026

The overall picture painted by the December survey is one of guarded optimism. Small business owners see improvement on the horizon but remain wary of potential policy changes—particularly around taxes—that could affect their bottom lines.

For investors, the NFIB survey serves as a valuable leading indicator of economic activity, as small businesses account for a substantial share of U.S. employment and GDP. The current reading suggests the economy should continue expanding at a modest pace in early 2026, supported by entrepreneurial confidence that has, despite challenges, proven remarkably resilient.