- The NFIB’s Small Business Optimism Index rose 2.1 points to 97.4 in June, moving closer to its 52-year average of 98.0. The Uncertainty Index fell 2 points to 89, although it remains elevated relative to historical norms, underscoring that the improvement in sentiment has not fully translated into a more predictable operating environment.
- Seven of the ten Optimism Index components improved during the month. The largest gains came from expectations for better business conditions, which rose 10 points to 13%, and expectations for higher real sales volumes, which increased 8 points to 9%. Hiring plans, job openings, and inventory assessments also improved, while planned capital outlays rose to 20%, the highest reading of the year. Offsetting these gains were weaker earnings trends, reduced plans to build inventories, and slightly more pessimistic views on future credit conditions.
- Labor market indicators recovered modestly following May’s weakness. The share of firms reporting hard-to-fill job openings rose 3 points to 32%, while the net share planning to increase employment climbed 2 points to 11%. However, labour quality remains a constraint: 51% of firms hiring or trying to hire reported few or no qualified applicants, the highest share since September 2024, and 19% cited labour quality or availability as their single most important problem. Despite the improvement, hiring activity remains relatively subdued compared to levels seen through much of last year.
- Inflation pressures remain a key concern for small businesses. The net share of firms raising average selling prices increased 2 points to 38%, the highest reading since early 2023 and the fourth consecutive monthly increase. Inflation was cited as the most important business problem by 21% of owners, up 3 points from May. Encouragingly, the share of firms planning to raise prices over the next three months declined slightly to 32%, suggesting some easing in forward-looking price pressure.
Key Implications
- June’s report points to a meaningful improvement in small business sentiment, driven largely by stronger expectations for business conditions and sales. The rebound suggests that concerns about the economic outlook have eased somewhat, supported by lower energy costs and a decline in uncertainty. However, optimism remains below its long-run average and firms continue to report caution around hiring and investment decisions, even as capital spending intentions improved from very weak levels.
- Despite the stronger headline reading, underlying conditions remain mixed. Labor demand improved but remains moderate, earnings trends deteriorated further, and inflation has re-emerged as the top business concern. The labour backdrop also looks more supply-constrained than demand-driven, with firms reporting fewer qualified applicants even as compensation pressures cooled. While softer price-setting intentions offer some hope that inflation pressures may ease over coming months, elevated borrowing costs and persistent cost pressures are likely to remain headwinds for small business activity through the second half of the year.
