U.S. NFIB Small Business Optimism Index Rises in July to the Highest Level Since Feb. ’22

The NFIB Small Business Optimism Index rose to 93.7 in July, the fourth straight m/m rise to the highest level since February 2022, from 91.5 in June, according to the July 2024 Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index, while up from its recent low of 88.5 in March and a low of 89.0 in April 2023, had been below the 50-year average of 98 for the 31st straight month; it was also down from a high of 102.5 in June 2021. Five of the 10 index components rose, two fell, and three were unchanged. The NFIB Small Business Uncertainty Index increased to 90 in July, the highest level since November 2020, from 82 in June; it was up from its recent low of 65 in November 2023, 80 in July 2023, and a low of 55 in June 2022.

The outlook for business conditions in the next six months was less negative in the latest survey. The net balance of respondents expecting the economy to improve jumped 18 pts. to -7% in July, the fourth m/m increase in five months to the highest level since November 2020, from -25% in June; it was significantly up from a record-low -61% in June 2022. Expected real sales rose to a net -9% in July, the highest level since December, after registering at -13% in June and May, indicating continued pessimism but at a less severe pace. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -16% of respondents reported higher nominal sales in the past three months, down from -12% reported in June and a peak of 9% in June 2021.

Plans to make capital outlays held steady at 23% for the third consecutive month in July. This reading was up from its recent low of 20% in March and a low of 19% in April 2023 but down from a high of 27% in July 2023 and a high of 31% in October 2021. Plans to expand the business rose to 5% in July after having registered at 4% for four successive months. These figures, while slightly up from a low of 2% in March 2023, were below a high of 11% in December 2021 and a high of 15% in June 2021. Meanwhile, expected credit conditions held steady at -7% in July for the third straight month; the latest number was down from a high of -4% in May 2022 and a high of -3% in November 2021.

On the labor front, labor markets remained tight but eased slightly. Forty-nine percent of respondents reported that qualified workers to fill job openings were hard to find in July, following 51% for three consecutive months. These numbers were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 15% planned to increase employment in July, unchanged from June and May, but it was down from a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 38% reported positions not able to be filled in July following 37% in June. These figures were historically high; however, having remained below a high of 51% in May 2022. Overall earnings trends fell back to -30% in July, a poor reading, from -29% in June; these numbers were below a high of -18% in March 2023.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices declined to 22% in July, the lowest reading since February, after a two-point increase to 27% in June; the latest number was modestly down from 25% in July 2023 and well below a high of 66% in March 2022. The percentage planning to raise prices eased to 24% in July, the lowest reading since April 2023, from 26% in June; these figures were well below a high of 52% in March 2022.

Wage inflation, while remaining relatively high, eased somewhat in the July survey. A net 33% of respondents raised compensation during the last three months, registering the lowest reading since April 2021 and modestly down from 38% reported in the June survey. It was also down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 18% of firms planned to raise worker compensation in the next three months, down from 22% reported in June. It was below a high of 30% in November 2023 and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 25% of NFIB members in July as the single most important problem. It was down from 21% in June and a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in July, unchanged from June. Other concerns (in July vs. June) included taxes (15% vs. 14%), the cost of labor (9% vs. 11%), and government requirements (8% vs. 10%).

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.