NFIB Small Business Optimism Improves in June

The Small Business Optimism Index rose to 91.0 during June from 89.4 in May, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. It was the highest level since November.

The outlook for business conditions in the next six months led the latest index improvement. The net balance expecting the economy to improve rose to -40% from -50%. It was the highest level since February of last year and increased from a record low of -61 in June 2022. The net balance expecting higher real sales in six months rose to -14%, the highest level since February. The balance reporting that now was a good time to expand the business rose to 6% from 2% three months earlier. It also was the highest level since February. Earnings trends improved slightly while expected credit conditions also improved.

Offsetting these gains were readings of the labor market. The reading for current job openings declined to 42% from 44%. That reversed the earlier improvement to 47% in February. The reading for the percent of firms planning to raise employment fell to 15% and reversed two months of improvement. The percent of firms reporting few or no qualified applicants for job openings eased to 54% from 55% in both of the prior two months. The quality of labor was considered the single most important problem by an elevated 24% of firms, up from 21% in February.

Falling slightly to -3% was the percent of firms planning to add to inventories. Fewer indicated that inventories were too low.

Labor compensation pressures eased drastically. The June reading showed that a net 36% of respondents increased compensation over the last three months, down from 41% in May and the least since May 2021. A steady net 22% expect to raise compensation in the next three months. The cost of labor was viewed as the largest problem by a greatly lessened 8% of respondents in June.

Inflation pressures have subsided greatly in the past year. The net balance of firms increasing their average selling prices fell to 29% in June, which was the least since March 2021. This figure was down from 63% twelve months earlier. Working the other way. the net balance planning to increase selling prices in the next three months rose to 31%, up from a 24% December low. Inflation was viewed as the single most important problem by 24% of respondents, down from a high of 37% in July of last year.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.