Small Business Confidence Reaches 7-Month High in June, NFIB Reports.

Small Business Confidence Reaches 7-Month High in June, NFIB Reports.

July 11, 2023: In June, small business confidence in the United States reached its highest level in seven months, according to the National Federation of Independent Business (NFIB). The survey released on Tuesday revealed that optimism among small businesses improved as concerns about the economic outlook diminished and sales expectations increased. However, the tight labor market continued to raise worries about inflation.

The Small Business Optimism Index, compiled by the NFIB, rose by 1.6 points to 91 in June, marking the most significant month-to-month improvement since August 2022. Small businesses demonstrated their least-pessimistic view of near-term economic prospects since February 2022, with NFIB’s general business conditions outlook index climbing 10 points to negative 40. This shift indicates a significant improvement in sentiment compared to previous months.

Sales expectations also showed improvement, with fewer business owners anticipating weaker sales in the next three months compared to May. This positive trend lifted the overall sales outlook to its highest level in four months.

While small business owners remained concerned about inflation, it was on par with finding quality workers as their most important problem. However, the survey noted a decline in concern about price pressures compared to a year ago. In June, 24% of small business owners cited inflation as their biggest headache, down from 25% in May and significantly lower than last July’s peak. This decrease in inflation-related concerns is a positive sign, indicating a slight easing of the inflationary pressures faced by small businesses.

Despite the improved economic outlook, the Small Business Optimism Index has yet to reach the 49-year average of 98, remaining below it for the 18th consecutive month. Small businesses continue to grapple with the challenges posed by the cost and quality of labor in a job market that, although slowing, remains tight.

The survey revealed that 42% of small business owners reported difficulties filling job openings, a slight decrease from the previous month but still at a historically high level. Additionally, 15% of owners planned to create new jobs in the next three months, down 4 points from May. Concerns about inflation were primarily driven by the limited availability of qualified workers.

NFIB Chief Economist Bill Dunkelberg acknowledged that inflation and labor shortages continue to pose significant challenges for small businesses. Many owners are raising prices to cope with higher inventory, labor, and energy costs. However, the overall rate of price increases slowed in June, with 29% of owners raising average prices, the lowest reading since March 2021. Despite the moderation, the rate remains at an inflationary level.

Economists anticipate that the Federal Reserve will resume interest rate hikes in July, considering the persisting concerns related to inflation and the impact of the tight labor market. The NFIB survey provides valuable insights into the sentiment and challenges small businesses face, shedding light on the overall health of the U.S. economy.

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