Small business sentiments slightly improved last month as owners continue to face a tight workforce and high prices, according to the National Federation of Independent Business’ Small Business Optimism Index.
The index increased by nearly a point to 91.9 in July, its 19th straight month of being under the 49-year average of 98. Inflation showed signs of easing: Twenty-one percent said rising prices were their top problem in operating their business, down three points from June.
Forty-two percent of owners said job openings were hard to fill last month, unchanged from June but still historically high. The vast majority of the 61 percent of owners either hiring or trying to hire last month reported having few or no qualified applicants.
The frequency of positive profit trend reports fell six points to a net-negative 30 percent in July. Owners who reported a drop in profits cited weaker sales, a rise in the cost of materials and higher labor costs. A net-negative 13 percent saw higher nominal sales in the past three months, down three points from June and its lowest reading in nearly three years.
Future expectations also remained stunted. Owners expecting business conditions to improve over the next six months improved 10 points to a net-negative 30 percent, which is 31 percentage points better than last June’s reading of a net-negative 61 percent. “This is the highest reading since August 2021 but historically very negative,” NFIB stated.
The net percent of owners raising average selling prices fell four points to a net 25 percent, which still indicates inflation. Forty percent reported higher average selling prices while only 14 percent saw selling prices fall. The net percent of owners expecting sales to grow increased two points to a net-negative 12 percent.
“With small business owners’ views about future sales growth and business conditions dismal, owners want to hire and make money now from solid consumer spending,” said NFIB Chief Economist Bill Dunkelberg. “Inflation has eased slightly on Main Street, but difficulty hiring remains a top business concern.”
Last month, the Federal Open Market Committee raised interest rates 25 basis points to a range of between 5.25 percent and 5.50 percent. Federal Reserve Gov. Michelle Bowman expects at least one more rate hike will be needed to bring inflation down to the FOMC’s long-term 2 percent target. “Fed policies raising interest rates and reducing their portfolio have not had a significant impact on small firms,” NFIB stated.
Economic uncertainty remains after Fitch Ratings recently downgraded US debt, and the cost of servicing the debt continues to rise as newly-issued debt with higher interest rates takes the place of expiring bonds. “This will crowd out other government spending,” NFIB stated. “Add the political uncertainty and small businesses, especially new ones, face an exceptionally challenging environment over the next two years.”