News

The NFIB Small Business Optimism Index ticked up 1.7 points to 100.3 in July, remaining above the 51-year average of 98. July’s increase stemmed primarily from an improvement in business conditions and reports that it was a good time to expand. Of the 10 components included in the index, six increased, two decreased and two stayed the same. Meanwhile, the Uncertainty Index rose eight points to 97, indicating a notable worsening of small business uncertainty and remaining well above the 51-year average (68) and the average since 2016 (80).

Labor quality ranked first in the list of concerns for small business owners in July, with 21% reporting it as the most important problem, up five points from June. On the other hand, fewer small business owners reported jobs they could not fill in July, down three points from June to 33%. Following the passage of the tax bill, taxes fell in the rankings of top small business concerns in July to second after being the top concern in June, with 17% reporting them as their most important problem, down two points from the month prior. Inflation and poor sales tied for third in the list of concerns, with 11% reporting it as a top concern.

A net 27% of small business owners reported raising compensation, down six points in July after jumping seven points in June. Meanwhile, just 17% of small business owners plan to increase compensation in the next three months, down two points from June. The cost of labor on inflation is easing, but profitability remains under pressure, with a net negative 22% reporting positive profit trends, the same percentage as in June. Of those reporting lower profits, 34% claimed weaker sales, 13% cited increased material costs and 11% claimed labor costs. A net 24% of small business owners planned price hikes in July, down five points from June but remaining above the average of net 13%. Meanwhile, 4% reported their last loan was harder to get than previous attempts, down one point from June, and a net 5% of owners reported paying a higher rate on their most recent loan, down four points from the prior month.

The outlook for general business conditions soared fourteen points to 36%, a very positive reading by historical standards. Additionally, the share of firms saying it is a good time to expand rose five points to 16% in July. With the Uncertainty Index at elevated levels, tariffs, inflation and geopolitical tensions all remain sources of doubt influencing hiring, pricing and investment decisions. Small businesses are hopeful that the next six months will provide some clarity to these issues, which would provide an incentive to invest.