Small Business Owners' Optimism Reaches New High at Year's Midway Point

By Sarah Lynch, Inc. (TNS)

Small business optimism may have reached another high for the year, but the picture is still far from rosy.

The latest Small Business Optimism Index from the National Federation of Independent Business reached 91.5 in June, an increase of one point from May and the most optimistic reading of 2024 to date. Additionally, the share of owners who expect better business conditions in six months improved by 5 percentage points.

But context is key, as expectations for better business conditions remain net negative (in 2019 and 2020, expectations in all but one month were net positive). And the June optimism index still marks the 30th month below the index’s historical average of 98.

“Main Street remains pessimistic about the economy for the balance of the year,” said NFIB chief economist Bill Dunkelberg in a press release about the report.

That’s because there’s still plenty weighing on small business owners, according to the report—namely, inflation, which was the top business problem reported by owners yet again in this report, with “no relief” in sight, Dunkelberg added. Though the Consumer Price Index slowed in May, it’s still well above the Federal Reserve’s 2 percent target.

Compensation costs, in particular, are continuing to plague owners, with a net 22 percent planning to increase them further in the next three months—despite evidence of cooling wage growth in the Department of Labor’s most recent jobs report as well as a five-point drop in the share of owners struggling to fill open positions according to the latest NFIB jobs report.

To keep up, owners are hiking selling prices—a net 27 percent, up two points from May—but few are benefiting from stronger sales in general. In the past three months, a net negative 12 percent reported higher nominal sales—a “recession-level” reading, according to the report.

The combination of these pressures seems to be making companies skittish about investing for the future, as just 52 percent reported capital outlays in the past six months—the lowest since August 2022 and a six-point drop from May.

“A recovery in investment is needed to support stronger productivity,” the report stated, “but this is unlikely to occur while interest rates remain high, and more owners anticipate slower sales.”

Indeed, interest rates haven’t fallen from their 23-year high since last July. And while the Fed is still signaling that there could be a cut before the end of the year, small-business owners are continuing to face mounting pressures in the meantime, Dunkelberg said, as they “prepare for the uncertain months ahead.”

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