U.S. NFIB Small Business Optimism Rises in July; Highest Level Since February

The NFIB Small Business Optimism Index increased to 100.3 in July, the highest level since February, from 98.6 in June and 98.8 in May, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the third consecutive month that the index was above the 52-year average of 98. The index was down from its recent peak of 105.1 in December but up from 93.7 in July 2024 and a low of 88.5 in March 2024. Six of the 10 index components rose, two fell, and two were unchanged. Amid high uncertainty (with tariffs, inflation, and international conflicts), the NFIB Small Business Uncertainty Index rose to 97 in July, the highest reading in five months, after a five-point decline to 89 in June. The index, while down from its record high of 110 in October, was above its recent low of 86 in December and a low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the ninth straight month in the latest survey. The net balance of respondents expecting the economy to improve rose to 36% in July, the highest level since February, following a three-point decline to 22% in June; thus, having remained significantly above a record low of -61% in June 2022. Expected real sales slipped to a net 6% in July after a three-point decrease to 7% in June, posting the lowest of three successive positive readings. The latest figure was above its recent low of -18% in August 2024. A net -9% of respondents reported higher nominal sales in the past three months, down from -5% in June. The latest result was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to expand the business rose to 16% in July, the highest reading since January, from 11% in June; the latest figure, while down from its most recent high of 20% in December, was up from a low of 2% in March 2023. Plans to make capital outlays rebounded to 22% in July following a one-point dip to 21% in June; these numbers were down from their recent high of 28% in November and a high of 31% in October 2021. Meanwhile, expected credit conditions registered at -4% for the third consecutive month in July; this steady reading was slightly below its recent high of -2% in December but above a low of -11% in November 2023.

On the labor front, forty-eight percent of respondents reported that qualified workers to fill job openings were hard to find in July, down from 50% in June. These numbers were below their recent high of 56% in August 2024, a high of 57% in September 2023, and a peak of 62% in September 2021. A net 14% planned to increase employment in July, slightly up from 13% in June and posting the highest reading since February; it was above its recent low of 11% in March 2024 but below a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 33% reported positions not able to be filled in July, down from 36% in June and registering the lowest reading since January 2021; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure held at -22% in July and June, a poor reading, following a five-point drop to -26% in May. These readings, while up from a low of -37% in August 2024, remained below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, actual and expected selling prices, while trending down, remained at an inflationary level; thus, suggesting continued inflationary pressures. The net percent of firms raising their average selling prices fell to 24% in July, the lowest reading since January, after a four-point rise to 29% in June. These numbers were up from 22% in July 2024 but well below a high of 66% in March 2022. The percentage planning to raise prices fell to a three-month-low 28% in July following a one-point increase to 32% in June; these figures were above 24% in July 2024 but below a high of 33% in March 2024 and a high of 52% in March 2022.

Wage inflation, while relatively high, eased in the July survey. A net 27% of respondents raised compensation during the last three months, down from 33% reported in the June survey. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, down from 19% reported in June and posting the lowest reading in three months; these numbers were below a high of 28% in November, a high of 30% in November 2023, and a high of 32% in October 2022.

The quality of labor was reported as the single most important problem facing small businesses, as reported by 21% of NFIB members in July, up five points from 16% in June; it registered the highest reading since August 2024 and the biggest m/m increase since August 2022. Taxes were reported as the next most important problem, with 17% reported in July vs. 19% in June. Inflation continued to be a problem facing small businesses, as reported by 11% in July and June, the lowest reading since September 2021; the figure was well below a peak of 37% in July 2022. Other concerns (in July vs. June) included poor sales (11% vs. 10%), the cost of labor (9% vs. 10%), government requirements (8% vs. 9%), insurance cost/availability (8% vs. 8%), and competition from large businesses (6% vs. 7%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.