In a significant indicator of economic sentiment, small business optimism in the United States rose last month, reaching its highest point since February 2022. According to the most recent survey conducted by the National Federation of Independent Business (NFIB), the small business optimism index experienced a sequential increase of 2.2 points, landing at 93.7 for July.
However, this rise comes with the caveat that it still marks the 31st consecutive month that optimism levels remain below the 50-year average of 98. Analysts had anticipated an unchanged reading of 91.5, as per a survey compiled by Bloomberg. Approximately 25% of small business owners identified inflation as their foremost concern, reflecting a four-point increase since June. "Despite this increase in optimism, the road ahead remains tough for the nation's small business owners," remarked Bill Dunkelberg, Chief Economist at NFIB.
He continued to highlight that cost pressures, particularly related to labor, persist as a significant hurdle impacting small business operations and their profitability. Dunkelberg noted the uncertainty surrounding future economic conditions and government policies seems to weigh heavily on owners' minds as they navigate unpredictable months ahead. The NFIB survey revealed that 19% of small business owners consider labor quality their most pressing issue, while 9% pointed to labor costs as a primary concern.
Andrew Foran, an economist at TD, acknowledged in a report to clients that although the sentiment among small business owners is showing signs of improvement, a cautious outlook remains predominant. Furthermore, the NFIB report suggested that a substantial number of business owners are still bracing for potential economic downturns ahead. Furthermore, a net negative 16% of owners reported an increase in nominal sales over the past three months.
However, those projecting an uptick in real sales volumes saw an increase of four points to a net negative 9%, marking the highest reading for the year 2024 to date. On the compensation front, a net 33% of owners indicated they raised wages last month, which is a decrease of five points compared to June and represents the lowest reading since April 2021.
The survey also reported that seasonally adjusted, 18% of business owners plan to increase compensation in the upcoming three months, which is down by four points. Foran commented on wage trends, stating, "Wage pressures appeared to ease considerably in July, with the percentage of firms implementing or planning wage increases nearly returning to pre-pandemic levels." Additionally, the NFIB survey unveiled that a seasonally adjusted 38% of owners reported job openings they could not fill, reflecting a one-point uptick since June.
As small businesses continue to grapple with these fluctuating challenges, the interplay between optimism and ongoing economic pressures remains a focal point for economic analysts and policymakers alike..