Study: Optimism is increasing, but inflation remains worrying

WASHINGTON — The National Federation of Independent Businesses (NFIB) The Small Business Optimism Index rose 2.2 points to 93.7 in July, the highest since February 2022, but the group notes that this is the 31st consecutive month below the 50-year average of 98.

According to the NFIB, inflation remains the biggest problem for small business owners, with 25% of small business owners saying it is the most important problem in running their business, up four percentage points from June.

“Despite this increased optimism, the road ahead remains tough for the nation's small business owners,” says Bill Dunkelberg, chief economist at NFIB. ​​”Cost pressures, particularly labor costs, continue to weigh on small businesses and impact their bottom lines. Owners face unpredictable months, not knowing how future economic conditions or government policies will affect them.”

The key findings of the study include:

• Seasonally adjusted, a net 33% said they would receive a pay rise in July. This is five percentage points less than in June and the lowest figure since April 2021.
• The net share of owners expecting higher real sales figures rose by four percentage points in July to net minus 9% (seasonally adjusted), the highest level this year.
• The net percentage of owners increasing average selling prices fell five percentage points since June to a seasonally adjusted net increase of 22%.
• Seasonally adjusted, tariffs rose by 24% (minus two percentage points) in July. This is the lowest figure since April 2023.
• 38 percent (seasonally adjusted) of all owners reported vacancies that they were unable to fill in the current period. That is one percentage point more than in June.

Study results

Seasonally adjusted, the NFIB reported that 38% of all small business owners reported job openings they were unable to fill in their current period, up one percentage point from June. Of the 57% of owners who were hiring or attempting to hire in July, 86% reported there were few or no qualified applicants for the positions they were trying to fill.

A net negative 16% of all owners (seasonally adjusted) reported higher nominal sales over the past three months. The net percentage of owners expecting higher real sales increased by four points to a net negative 9% (seasonally adjusted), the highest this year.

The net share of owners reporting inventory increases fell by six percentage points to minus 9%, the lowest level since August 2020. Not seasonally adjusted, 11% reported inventory increases and 17% reported inventory reductions.

The net percentage of owners raising average sales prices decreased five percentage points from June to a net 22%, seasonally adjusted. Twenty-five percent of owners said inflation was their single most important problem in running their business. On an unadjusted basis, 13 percent reported lower average sales prices and 36 percent reported higher average prices.

Seasonally adjusted, a net 33% said they plan to increase compensation, five points lower than June and the lowest since April 2021. Seasonally adjusted, a net 18% plan to increase compensation in the next three months, four points lower than June. Nine percent of owners cited labor costs as their biggest business problem, two points lower than June and just four points lower than the highest of 13% in December 2021. Nineteen percent said labor quality was their biggest business problem, second only to inflation as the most important problem.

The frequency of reporting positive profit trends was a net minus 30% (seasonally adjusted), one percentage point worse than in June. Of the owners who reported lower profits, 33% blamed weaker sales, 17% the increase in material costs, 11% labor costs and 10% lower selling prices. Of the owners who reported higher profits, 45% cited sales volumes, 31% cited normal seasonal fluctuations and 11% higher selling prices.

About the study

The NFIB Research Center has collected quarterly data on small business economic trends since the fourth quarter of 1973 and monthly data since 1986. Survey participants are randomly selected from the NFIB membership. The report is released on the second Tuesday of each month. This survey was conducted in July 2024.