Construction owners make better decisions when they read the economic data that describe their customers. The monthly surveys from the National Federation of Independent Business give builders a running look at how Main Street firms feel about hiring, pricing, inventory, and credit, and those readings tend to lead actual building activity by several months. A contractor who watches the numbers can shift marketing, staffing, and purchasing before a downturn arrives, while a contractor who ignores them reacts after the fact. Firms that spread work across private and public clients, including urban street construction operations, see the swings first because municipal work cycles on different timing than residential demand.
The January survey summarized the mood precisely. The Small Business Optimism Index fell 2.3 points to 102.8, the third consecutive month above the 51-year average of 98, while the Uncertainty Index jumped 14 points to 100, the third highest reading ever recorded. The association’s chief economist described owners as optimistic about future business conditions but increasingly uncertain, with hiring challenges still frustrating Main Street and fewer firms planning capital investments for the months ahead.
| Metric | January reading | Change from December |
|---|---|---|
| Optimism Index | 102.8 | -2.3 points |
| Uncertainty Index | 100 | +14 points |
| Owners calling inflation the top problem | 18% | -2 points |
| Owners calling labor quality the top problem | 18% | -1 point |
| Owners with unfilled job openings | 35% | unchanged |
| Hiring owners with few or no qualified applicants | 90% | not reported |
| Net percent raising selling prices | 22% | -2 points |
| Net percent planning price hikes | 26% | -2 points |
| Owners planning capital outlays | 20% | -7 points |
| Net percent planning inventory investment | 0% | -6 points |
| Net percent raising compensation | 33% | +4 points |
| Owners finding their last loan harder to get | 3% | -1 point |
How the Optimism Index Works
The Optimism Index is a seasonally adjusted composite of ten survey components, each asking owners about a different planning decision. Because the questions stay fixed and the survey has run for more than five decades, the index offers a consistent yardstick for comparing one month against every month since the 1970s.
The Ten Components
- Plans to increase employment
- Plans to make capital outlays
- Plans to increase inventories
- Expectations that the economy will improve
- Expectations that real sales will rise
- Satisfaction with current inventory levels
- Expectations that credit conditions will ease
- Whether now is a good time to expand
- Recent earnings trends
- Whether the owner is raising selling prices
Reading the 51-Year Average
The 51-year average of 98 provides the baseline. Readings above it historically coincide with a growing small-business sector, while sustained readings below it have preceded slowdowns in hiring and capital spending. January’s 102.8 marks three straight months above that line, which is why the headline stays optimistic even as the uncertainty reading climbs.
The index matters most at the local scale, where historic main streets in small towns depend on the same owners the survey samples. When those owners stop planning expansions, local demand for construction services follows within a quarter or two.
Hiring Pressure and the Labor Market
Hiring remains the loudest complaint. A seasonally adjusted 35 percent of owners reported job openings they could not fill in January, unchanged from December, and of the 52 percent who were hiring or trying to hire, 90 percent said they found few or no qualified applicants. Labor quality held at 18 percent as the single most important problem, tied with inflation for the top spot.
Ninety Percent of Hiring Owners See Few Qualified Applicants
That 90 percent figure is the number to quote at the next industry meeting. It means the shortage is not about job postings; it is about the available labor pool. Construction firms respond with recruiting pipelines that start before a project is won, through trade school partnerships, apprentice programs, and referral bonuses for current crews.
Compensation Pressures in the Trades
Wages are moving. A seasonally adjusted net 33 percent of owners raised compensation in January, up four points from December’s low, though a net 20 percent plan to raise compensation in the next three months, down four points. The combination of rising actual pay and cooling plans to raise it again suggests owners are paying more to keep the people they have rather than bidding aggressively for new hires.
Firms that add work types in demand can compete for a broader pool. Energy upgrades are one example: contractors who build clean energy projects on Main Street attract workers interested in new systems and give the firm a second revenue line when traditional renovation work slows.
- Start recruiting before the bid is won, not after.
- Run a weekly job board that lists every open position with pay ranges.
- Cross-train crew members so one skill shortage does not stop a project.
- Ask every satisfied customer for referrals to workers, not just work.
- Review compensation against local competitors twice a year.
Inflation, Pricing Power, and Input Costs
Inflation pressure eased at the margin. Eighteen percent of owners called inflation their single most important problem, down two points from December and the lowest reading since November 2021, matching labor quality as the top issue. The net percent of owners raising selling prices fell two points to 22 percent, and a net 26 percent plan price hikes in the next three months, down two points.
Inflation at Its Lowest as a Top Problem Since 2021
The November 2021 comparison is worth remembering. That was the period when material costs spiked and builders passed them through almost automatically. The January reading shows owners no longer treating inflation as the dominant threat, which gives construction firms room to hold prices on firm bids instead of padding every estimate for expected escalation.
When Pricing Power Fades
The flip side of falling inflation is falling pricing power. With a net 26 percent still planning hikes, owners expect to raise prices, but the direction is downward. Buyers who feel squeezed respond by trading down, and in housing that shows up as demand for smaller and denser product types such as compact housing patterns rather than large custom homes.
Capital Spending and Inventory Plans
The clearest caution flag in the January report is the drop in forward commitments. Twenty percent of owners plan capital outlays in the next six months, down seven points from December, and a net 0 percent plan inventory investment in the coming months, down six points from December’s highest reading since December 2021.
A Seven-Point Drop in Capital Plans
Capital outlay plans are equipment, vehicles, and facility spending in waiting. A seven-point monthly drop is a large move, and it tells equipment dealers and building contractors that business customers are deferring purchases. For a contractor, the same signal argues for quoting with shorter validity periods and collecting deposits earlier.
Inventory at a Standstill
A net zero on inventory investment means as many owners plan to cut stock as plan to add it. Material suppliers should read this as a warning to keep lead times honest and avoid stocking slow lines, while builders can use the moment to negotiate better terms on the materials they do commit to, since suppliers are competing for fewer orders.
Public-sector work behaves differently. Streetscape and downtown improvement projects, including the walkable community design programs many small towns are funding, run on grant and municipal cycles that do not move with the private capital plans in this survey, which is one reason diversified contractors weathered the last downturn better than residential-only firms.
Credit Conditions and the Window Ahead
Borrowing got easier to obtain even as the mood soured. A net 3 percent of owners said their last loan was harder to get than previous attempts, down one point and the lowest reading since June 2022. By owners’ own reports, the credit market is the most accommodating it has been in years.
The Easiest Credit Market Since Mid-2022
Cheap availability does not equal cheap money, but access matters more than rate for most small contractors. With lenders willing to lend, firms that have clean books can lock in working capital lines, replace aging equipment, and fund the deposits on land or buildings before the next upswing crowds the credit market again.
Prudent owners treat this window the way builders treat a foundation: protect the parts that are hardest to repair later. Just as waterproofing brick piers below grade stops moisture damage before it reaches the structure, refinancing and reserve building now prevent financial damage before the cycle turns.
Using the Window Before the Cycle Turns
The discipline is simple: borrow while lenders are open, hire while workers are available, and buy while suppliers discount. Each of those conditions is better today than it was a year ago, and none of them is guaranteed to last.
The January numbers describe a sector that is healthy but cautious, and the wise response is the same one engineers apply when they face unknowns. Contractors who plan staffing, pricing, and capital purchases the way engineers approach uncertainty in structural engineering design, with margins for the downside and trigger points for action, tend to come through the next twelve months in better shape than those who bet on a single forecast.