In the latest update from the National Federation of Independent Business (NFIB), the Small Business Optimism Index grew by 2.2 points in July, marking its highest level since February 2022. This surge reflects a notably more positive outlook among small business owners, particularly regarding future economic conditions.
A significant factor in this upturn is the dramatic 18-point recovery in expectations for the business climate over the next six months. The perspective shifted from a net negative 25 percent in June to a net negative 7 percent in July, indicating a less pessimistic stance among entrepreneurs.
Sales expectations also showed signs of robustness, with the anticipation for higher real sales volumes recording the peak figure for the year—a net negative 9 percent. Moreover, the readiness to boost inventory levels climbed to a net 2 percent, reaching a positive territory not seen since October 2022.
According to Bill Dunkelberg, NFIB’s chief economist, the easing of hiring difficulties played a role in this positive shift. July marked the second consecutive month of net employment gains among small businesses, a trend that may be attributed to “reduced labor demand at large firms,” as noted in the NFIB report. This situation likely provides smaller companies a better chance to attract and retain employees, as they face less competition from their larger counterparts.
Nevertheless, small businesses continue to confront significant challenges. Cost pressures, especially labor costs, continue to plague small business operations, impacting their bottom line,” Dunkelberg explained. Indeed, profit margins remain under strain, with July seeing a net negative 30 percent of business owners reporting positive earnings—a stark contrast to the figures from 2019, where such negativity never dipped below a net negative 10 percent in any month.
Inflation emerges as the primary concern, cited by a quarter of business owners as their top challenge, a noticeable increase from the previous month. This persistent issue is restraining further price adjustments; plans to raise compensation fell to a net 33 percent, the lowest since April 2021, and intentions to increase prices dropped to a net 24 percent—the least since April 2023.
Despite these strides in business optimism, the index remains below its 50-year average for the 31st consecutive month. The road ahead remains tough for the nation’s small business owners,” Dunkelberg concluded, reflecting a cautious but hopeful outlook for entrepreneurs and solopreneurs navigating a complex economic landscape.
