General

The NFIB Small Business Optimism Index remained relatively steady, edging down just 0.2 to 98.6 in June, staying just above the 51-year average of 98. June’s decrease stemmed primarily from a decline in stocks of inventories. Of the 10 components included in the index, four increased, four decreased and two stayed the same. Meanwhile, the Uncertainty Index fell five points to 89 but remains well above the 51-year average (68) and the average since 2016 (80).

Taxes were ranked as small businesses’ top concern in June, with 19% reporting them as their most important problem, up one point from May. Labor quality ranked second as the top concern for many small business owners in June, with 16% reporting it as the most important problem, the same percentage as May. In June, 36% of small business owners reported jobs they could not fill, up two points from May. The challenge of filling open positions remains acute, particularly in manufacturing, transportation and construction. Inflation ranked third in the list of concerns, with 11% reporting it as a top concern.

A net 33% of small business owners reported raising compensation, up seven percentage points from May and the largest monthly increase since January 2020. On the other hand, just 19% of small business owners plan to increase compensation in the next three months, down one point from May. The costs of labor on inflation is easing, and profitability is facing less pressure, with a net negative 22% reporting positive profit trends, which is four points better than in May. Of those reporting lower profits, 40% claimed weaker sales, 17% cited increased material costs and 10% claimed price changes for their products. A net 32% of small business owners planned price hikes in June, up one percentage point from May. Meanwhile, 5% reported their last loan was harder to get than previous attempts, up one point from May, and a net 9% of owners reported paying a higher rate on their most recent loan, up two points from the prior month.

The outlook for general business conditions fell three points to 22%. When looking at the history of the survey, the share of firms saying it is a good time to expand was low, despite rising one point to 11% in June. Additionally, there was a notable decline in the percentage of firms reporting their business operations as excellent or good, with both down six points each. With the Uncertainty Index at elevated levels, small businesses remain hesitant to plan significant investments, and job gains are slowing. At the same time, the costs associated with rising compensation are anticipated to be passed on to customers in selling prices.