Show-Me State Times

The NFIB Small Business Optimism Index increased by 1.7 points in July to reach 100.3, slightly surpassing its 52-year average of 98. The main factors contributing to this rise were improved expectations about business conditions and more owners believing it is a good time to expand their operations. However, the Uncertainty Index also grew by eight points from June, reaching 97.

According to the latest survey, labor quality was identified as the most significant challenge for small business owners, with 21% naming it as their top issue—a five-point increase from June.

“Optimism rose slightly in July with owners reporting more positive expectations on business conditions and expansion opportunities,” said NFIB Chief Economist Bill Dunkelberg. “While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% Small Business Deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”

NFIB State Director Brad Jones added: “While finding qualified workers remains a real sticking point for our members, Main Street is feeling better about the future. With hopes that the business environment will improve and there will be greater opportunities to expand, our small business owners are feeling more optimistic. No doubt making the 20% Small Business Deduction permanent has played a significant role in that enthusiasm.”

State-specific data was not available for this report.

Survey results showed that in July, 13% of respondents rated their overall business health as excellent (an increase of five points), while those rating it as good rose three points to 52%. The proportion rating their businesses as fair dropped four points to 31%, and those describing them as poor fell three points to 4%.

The percentage citing poor sales as their main problem increased one point to 11%, marking its highest level since February 2021. Expectations for better business conditions improved significantly; a net seasonally adjusted 36% expect improvement—14 points higher than June and above historical norms.

Sixteen percent said it is currently a good time to expand (up five points from June). Inflation concerns remained steady at 11%, which is unchanged from June’s lowest reading since September 2021.

Expectations for higher real sales volumes dipped by one point from June (net seasonally adjusted at six percent), remaining below long-term averages even though they outpace actual sales figures.

Plans for capital spending in the next six months edged up one point (to a seasonally adjusted rate of twenty-two percent), but this remains seven points below historical trends.

In hiring trends reported in NFIB’s monthly jobs report, thirty-three percent had job openings they could not fill—down three points from June but still well above historic averages. Of those trying to hire during June, eighty-four percent found few or no qualified applicants. A net fourteen percent plan new job creation within three months (up one point).

Labor cost concerns dropped slightly; nine percent cited it as their top issue (down one point). Twenty-seven percent reported raising compensation (down six points), and seventeen percent intend further increases over three months (down two).

Capital expenditures increased modestly: fifty-five percent made investments in recent months—five points above June’s lowest mark since August 2020—with most spending directed toward equipment acquisition or facility improvements.

Sales performance remained mixed: net negative nine percent reported higher nominal sales over three months compared with prior periods—a four-point drop from June—and inventory levels stayed flat with little change from previous readings.

A net twenty-eight percent plan price hikes soon (down four points), signaling continued inflationary pressure even though actual price increases have moderated somewhat.

Profitability reports held steady at a net negative twenty-two percent trend. Owners attributing lower profits mainly cited weaker sales or rising costs; those seeing gains pointed mostly to higher sales volume or seasonal changes.

Financing challenges were relatively minor: four percent named interest rates or access as their biggest problem (up one point); regular borrowing activity among owners reached historically low levels at twenty-five percent; difficulties securing loans decreased slightly along with average interest rates paid on new loans.

Taxes ranked second among owner concerns at seventeen percent (down two) while regulatory issues fell by one point to eight percent—fifth overall among problems faced by respondents—and competition from larger firms declined marginally.

The NFIB Research Center has tracked these economic indicators through quarterly surveys since late-1973 and monthly since 1986 using random samples drawn from its membership base. The current report covers data collected during July and is released every second Tuesday each month.