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Economy in Brief

U.S. Small Business Optimism Edged Up in July
by Sandy Batten  August 9, 2022

• This was the first monthly increase in 2022, but optimism still remains quite low.

• Index of expectations for the next six months rebounded from series low in June.

• Six of the 10 index components fell in July.

• Inflation is the biggest major concern, highest since 1979.

The NFIB Small Business Optimism Index edged up to 89.9 in July from 89.5 in June, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the first monthly increase in 2022 but still the second lowest reading on the index since January 2013. Six of the index's ten components fell in July while four increased. The NFIB Uncertainty Index rebounded in July, rising to 67 from a 10-year low of 55 in June.

Inflation remained the major concern of small businesses. Thirty-seven percent of small business owners reported that inflation was their single most important problem in operating their business, an increase of 3%-points from June and the highest level since the fourth quarter of 1979. However, pricing by firms cooled a bit in July. The percentage raising selling prices fell to a still-elevated 56% from 63% in June. This was the third monthly decline in the past four months. And the percentage expecting to raise selling prices in the next three months declined 12%-points to 37%, its lowest reading since April 2021, from 49% in June.

After having fallen to a series low of a net -61% in June, the net balance of respondents expecting the economy to improve over the next six months rebounded to -52% in July. Plans to make capital outlays continued to fall, slipping to a net 22% in July from 23% in June. Expected real retail sales fell further in July to a net -29%, the lowest reading since the lockdown in the spring of 2020, from -28% in June. The net percentage expecting profits to rise slumped to -26% in July, the lowest reading since July 2020, from -25% in June.

Employment conditions softened slightly in July but remained tight by historical standards. Small businesses are still having difficulty finding qualified employees to meet their demand and managing supply chain disruptions, but this appears to be easing slightly. The net balance with job openings not able to be filled edged down to 49% in July from 50% in June and 51% in May, but the May figure was a series high. And the percentage of firms indicating few or no qualified job applicants declined to 57% in July from 60% in June and 61% in May. A net 20% of firms plan to increase employment in July, up slightly from 19% in June but down from 26% in May.

Upward pressure on wages also appears to be easing marginally. A net 48% of firms were raising worker compensation in July, the same reading as in June but just off the series-high of 50% in January. However, a net 25% expected to raise raised in the next three months, down from 28% in June.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

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