Economic Data and Growth

The NFIB Small Business Optimism Index inched up 0.5 points to 99.5 in December, remaining slightly above the 52-year average of 98. December’s increase was due primarily to the rise in those expecting better business conditions. Of the 10 components included in the index, two increased, three decreased and five stayed the same. Meanwhile, the Uncertainty Index dropped 7 points to 84, the lowest reading since June 2024 but still well above the 51-year average (68) and slightly above the average since 2016 (80).

Taxes were cited as the top concern for small business owners, with 20% reporting them as the most important problem, up 6 points from November. The share of business owners reporting labor quality as the top problem fell 2 points from November to 19%, with 33% struggling to fill open jobs and 53% reporting hiring or trying to hire in December. Meanwhile, inflation fell to third in the list of concerns, with 12% reporting it as a top problem, down 3 points from November, with a net 30% raising prices.

A net 31% of small business owners reported raising compensation, up 5 points in December after remaining unchanged in November. Meanwhile, 24% of business owners plan to raise compensation in the next three months, unchanged from November. Pressure on profitability weakened in December, with positive profit trends rising 3 points from November to a net negative 20%. Among owners reporting lower profits, 41% blamed weaker sales, 13% cited increased material costs, 12% mentioned usual seasonal changes, 9% reported price changes from their products or services and 7% noted labor costs. Meanwhile, 5% reported their last loan was harder to get than previous attempts, up 1 point from November, and a net negative 3% of owners cited paying a higher interest rate on their most recent loan, down 5 points from the prior month.

The outlook for general business conditions rose 9 points to 24%, the first increase since July. Despite the improvement in December, expectations for better business conditions have fallen 23 points since the start of 2025. At the same time, 13% reported that it is a good time to expand their business, unchanged for the second consecutive month and a rather weak reading compared to times of economic expansion. Overall, despite consumer sentiment remaining low, small business owners anticipate economic conditions to remain broadly favorable in 2026, with cost pressures moderating and other challenges easing.

U.S. import prices rose 0.4% from September to November, while increasing 0.1% over the year in November. Meanwhile, U.S. export prices stepped up 0.5% from September to November, while growing 3.3% over the year in November. Since the Bureau of Labor Statistics was unable to collect survey data in October due to a lapse in appropriations, indexes for that month were missing.

In November, U.S. import prices for manufacturing rose 0.2% over the year, as a surge in metals manufacturing prices offset declines across other sectors of the industry. Primary metal manufacturing experienced the most significant over-the-year U.S. import price increase in November, jumping 17.4%. On the other hand, the greatest yearly decrease in U.S. import prices occurred in beverage and tobacco product manufacturing, which fell 14.7% from November 2024. At the same time, U.S. export prices for manufacturing grew 4.0% over the year, with primary metal manufacturing exhibiting the largest rise (32.0%). Meanwhile, U.S. import prices for nonmanufacturing decreased 3.8% from November 2024, while U.S. export prices for nonmanufacturing edged down 0.6% over the year.

Fuel import prices decreased 2.5% from September to November. Over the past year, fuel import prices have dropped 6.6%, the largest over-the-year decline since August. Import petroleum prices declined 8.4% year-over-year in November, while natural gas prices surged 51.4% over that period. Nonfuel import prices ticked up 0.6% from September to November and 0.7% on an over-the-year basis. Higher prices for nonfuel industrial supplies and materials and for capital goods more than offset lower prices for foods, feeds and beverages; automotive vehicles; and consumer goods.

Agriculture export prices rose 1.3% from September to November and 2.6% over the past 12 months, driven by higher prices for vegetables, nuts and fruit. Meanwhile, nonagricultural export prices grew 0.4% from September to November and 3.3% over the year. Higher prices for consumer goods, capital goods and nonagricultural industrial supplies and materials drove the 12-month increase.

Manufacturing activity in New York state increased in January, with the headline business conditions index climbing 11.4 points to 7.7. The new orders index turned positive, rising 7.6 points to 6.6, while the shipments index jumped 21.3 points to 16.3, its highest level in over a year. Unfilled orders improved from -14.9 to -8.2, while inventories slipped 6.1 points to -2.1, indicating business inventories have started to decline. Delivery times lengthened, and supply availability improved but remained negative, increasing 2.8 points to -4.1.

Employment fell in January, with the index for the number of employees plunging 16.5 points to -9.0. Meanwhile, the average employee workweek declined to -5.4 from 2.5, signaling a decrease in hours worked from December. The prices paid index stepped down 1.4 points to 42.8, while the prices received index dropped 11.0 points to 14.4, a reflection of a slower pace of increase in both prices received and prices paid.

In January, firms’ optimism regarding the future declined slightly but remained high. The future business activity index edged down 3.2 points to 30.3. In the next six months, new orders are expected to rise but at a slightly slower pace compared to the prior month at 33.3. The future employment index rose 7.1 points to 14.9, suggesting an anticipated faster pace of employment growth over the next six months. Meanwhile, input and selling price expectations are forecasted to increase at a slower pace, falling from 55.4 to 52.6 and from 41.6 to 36.5, respectively. Furthermore, capital spending plans strengthened from December, up from 6.9 to 10.3.

In January, Philadelphia’s regional manufacturing activity rose to its highest level since September, with the index for general business activity jumping from -8.8 to 12.6. This month, 23.1% of firms reported increases in activity, while just 10.5% of firms noted decreases. The indexes for new orders and shipments both moved up, rising from 5.7 to 14.4 and from 3.2 to 9.5, respectively. Meanwhile, the employment index declined to 9.7 points as the average employee workweek shrunk 3.4 points to 9.1.

The prices paid index decreased from 49.3 to 46.9, its second consecutive monthly decline, while the prices received index rose from 26.0 to 27.8. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth declined for the second consecutive month but remained positive. After decreasing 8.0 points in December, expectations for future business activity fell 12.6 points to 25.5 in January. The drop came from a loss in the proportion of firms expecting an increase in activity (34.9%). At the same time, the number of firms anticipating a decrease in activity (9.3%) was down from 12.6% in December. The future new orders index slipped from 39.1 to 32.9, but the future shipments index edged up from 39.9 to 40.8. At the same time, the capital expenditures index grew from 29.1 to 30.3. The future prices paid and prices received indexes increased from 64.6 to 66.6 and from 57.2 to 61.8, respectively. Additionally, the index for future employment rose from 24.7 to 28.8.

In January, firms were asked to estimate changes in various costs over the past year and anticipate changes coming in 2026. Of those responses, firms said their costs for wages, health benefits and non-health benefits rose 5.3% during 2025. Looking forward, firms expect the average costs for these to climb 6.5% in 2026. Meanwhile, firms anticipate the increase in the cost of energy, other raw materials and intermediate goods to slow over the next 12 months. When asked about factors influencing their pricing decisions for their products, maintaining steady profit margins (77%), wages and labor costs (75%) and strength of demand as well as nonlabor costs (both 74%) were cited as most important to firms.

The Producer Price Index for final demand (also known as wholesale prices) rose 0.2% over the month in November, after prices inched up 0.1% in October. Over the year, producer prices moved up 3.0% in November, up from 2.8% in October. Meanwhile, prices for final demand excluding foods, energy and trade services increased 0.2% over the month in November after rising 0.7% in October. Prices for these goods advanced 3.5% from November 2024, the largest 12-month increase since March.

Within final demand, prices for services stayed the same in November after rising 0.3% in October. Meanwhile, prices for goods jumped 0.9%, the largest increase since February 2024. Within the final demand services index, prices for bundled wired telecommunications access services moved up 4.6%, while margins for health, beauty and optical goods retailing fell 4.3%. Within the final demand goods index, prices for final demand energy climbed 4.6%, accounting for over 80% of the November increase. The price for gasoline was the primary contributor of that increase, surging 10.5%, while prices for residual fuels declined 8.6%.

Processed goods for intermediate demand stepped up 0.6% in November, the largest increase since July. Nearly three-fourths of the November advance can be attributed to a 12.4% jump in the prices for diesel fuel. The indexes for gasoline, primary nonferrous metals, commercial electric power, utility natural gas and jet fuel also rose. On the other hand, the prices for sugar and confectionary products decreased 1.3%. Over the year, the index for processed goods for intermediate demand rose 3.6%.

Meanwhile, prices for unprocessed goods for intermediate demand advanced 0.4% in November, the first increase since July. The growth was led by a 1.4% rise in unprocessed energy materials, with the 10.8% gain in the index for natural gas being a major factor. At the same time, prices for unprocessed foodstuffs and feedstuffs declined 0.9%. Over the year, prices for unprocessed goods for intermediate demand inched up 0.1%.

Industrial production rose 0.4% in December, while manufacturing output increased 0.2% after moving up 0.4% in November. At 97.4% of its 2017 average, manufacturing production advanced 2.0% from December 2024. Capacity utilization for manufacturing was 75.6%, unchanged from November but up 1.1% over the past year. Capacity utilization remains 2.6 percentage points below its long-term average from 1972 to 2024.

In December, most major market groups posted gains. Consumer goods production grew 0.7%, while business equipment output increased 0.8%. The decline in production of consumer durables (down 0.7%) was led by home electronics’ output falling 1.4%, while the index for consumer nondurables rose 1.1%, experiencing gains in all but two of its categories. Among business equipment, the 1.7% gain in defense and space equipment more than offset a 0.2% loss in the index for information processing equipment. At the same time, the index for materials ticked up 0.2%, while the index for construction supplies inched down 0.3%, and the index for business supplies remained unchanged in December.

Durable goods manufacturing advanced 0.1% in December and 3.1% from the year prior. Monthly growth was greatest for primary metals (up 2.4%), while wood products posted the largest decline (down 2.3%). Meanwhile, led by a 1.8% gain in petroleum and coal products output, nondurable goods manufacturing increased 0.3% in December and 1.0% from December 2024.

Nonfarm payroll employment ticked up by 50,000 in December. Meanwhile, October and November’s job gains were revised downward by 76,000 to a loss of 173,000 jobs and a gain of 56,000 jobs, respectively. Following the government shutdown, employment is still down by 67,000 from September. The 12-month average stands at 49,000 job gains per month. On the other hand, the unemployment rate edged down 0.1 percentage point from November to 4.4% in December, while the labor force participation rate also ticked down 0.1 percentage point to 62.4%.

Manufacturing employment decreased by 8,000 in December, the eighth consecutive month of job losses, after slipping by 2,000 in November. On the other hand, the collective job losses in September and October of 14,000 were revised upward by 3,000 jobs to a decrease of 11,000 jobs. Manufacturing employment is down 68,000 over the year. Durable goods manufacturing employment edged down by 3,000 in December, while nondurable goods employment fell by 5,000. The most significant gain in manufacturing in December occurred in miscellaneous manufacturing, which added 1,800 jobs over the month. Meanwhile, the most significant loss occurred in plastics and rubber products manufacturing, which shed 4,900 jobs over the month.

The employment-population ratio inched up 0.1 percentage point from November to 59.7% in December but is down 0.2 percentage points from a year ago. Employed persons who are part-time workers for economic reasons declined by 146,000 from November to 5.34 million in December and are up from 4.36 million in December 2024. Native-born employment is down 656,000 from November but up 2,043,000 over the year. Meanwhile, foreign-born employment is up 310,000 over the month and 383,000 over the year. At the same time, the native-born unemployment rate is up 0.4 percentage points over the year to 4.1% in December, while the foreign-born unemployment rate is down 0.2 percentage points to 4.1%.

Average hourly earnings for all private nonfarm payroll employees rose 0.3%, or 12 cents, reaching $37.02. Over the past year, earnings have grown 3.8%. The average workweek for all employees edged down 0.1 hour to 34.2 hours and by 0.2 hours to 39.9 hours for manufacturing employees.

In October, the S&P Cotality Case-Shiller U.S. National Home Price NSA Index recorded a 1.4% annual gain, up slightly from 1.3% in September. The 10-City Composite saw an annual increase of 1.9%, down from 2.0% the previous month, while the 20-City Composite rose 1.3% year-over-year, down from 1.4%. Among the 20 cities, Chicago posted the highest annual gain at 5.8%, followed by New York at 5.0% and Cleveland at 4.1%. Tampa again recorded the lowest annual return, with prices falling 4.2%.

On a month-over-month basis, the U.S. National Index ticked down 0.2% before seasonal adjustment. At the same time, the 10-City and 20-City Composites both decreased in October, declining 0.2% and 0.3%, respectively.

High mortgage rates and inflation have begun to overwhelm home price resilience as affordability has slowed demand. Before seasonal adjustment, 16 of the 20 cities saw prices drop in October. The Midwest and Northeast markets continue to sustain growth as broader conditions across the country soften. Meanwhile, in addition to Tampa, the Sun Belt continued declining, including Phoenix (down 1.5%), Dallas (down 1.5%) and Miami (down 1.1%).

Following the weakest growth in more than two years in September, a new equilibrium has emerged within the housing market. Short-term momentum has stalled, and persistent affordability challenges have resulted in minimal price appreciation and declines in some regions.

In December, Texas factory activity contracted after rising the prior month. The production index plummeted 23.7 points to -3.2, dropping below the series average of 9.6. Furthermore, most other measures declined notably from November. The new orders index decreased 11.2 points to -6.4. Capacity utilization moved down 23.9 points to -4.5, while shipments plunged 25.7 points to -10.6.

Perceptions of manufacturing business conditions remained negative in December, with the general business conditions index inching down 0.5 points to -10.9. At the same time, the outlook worsened, with the company outlook index falling 5.6 points to -11.9. The uncertainty index weakened 15.7 points to 0, remaining far below the series average of 17.

Labor market indicators suggest a decline in both headcounts and the workweek in December, with the employment index stepping down 2.3 points to -1.1 and the hours worked index falling 17.4 points to -7.5. More than 13% of firms reported net layoffs, while a smaller percentage (12.3%) noted net hiring.

Price pressures were little changed, but wage pressures accelerated in December. The prices paid for raw materials index stepped up 0.7 points to 36. Meanwhile, the prices received for finished goods index decreased 2.6 points to 8.2. The wages and benefits index rose 6.4 points to 21.8, moving above the series average of 21.

The outlook for future manufacturing activity remained positive in December, with the future production index edging up 0.5 points to 34.2. Meanwhile, the future general business activity index ticked down 0.2 points to 10.8, while the future company outlook index inched up 0.3 points to 16.5.

The S&P Global Manufacturing PMI was 51.8 in December, down from the November reading of 52.2. New orders declined for the first time in a year. At the same time, exports fell for the seventh consecutive month, as tariffs continued to impact sales to key markets, especially Canada. Meanwhile, input and output prices rose in December, but at the slowest rate in 11 months. Despite the slowing pace of price increases, inflation remains elevated from a historical context in December.

Production rose over the month, allowing stocks of finished goods to rise for the fifth consecutive month. Nonetheless, output increased at a slower rate than November’s survey record due to the contraction in new orders. Furthermore, the gap between the growth of production and the drop in orders was the greatest since the height of the global financial crisis. If demand and export sales remain weak, the continuing rise in unsold stock likely will result in a decline in output in future months. Meanwhile, delivery times lengthened in December to their longest level in seven months due to difficulties receiving inputs as a result of supplier capacity constraints.

Uncertainty around tariffs continued to weigh on business confidence, with overall business confidence easing from November to the lowest level since April. Despite the uncertainty, expectations of lower interest rates and new investment plans kept business confidence positive. Firms expanded labor capacity in anticipation of strong sales next year. As a result, employment rose solidly for a fourth consecutive month in December.