Small business optimism grew last month but remained slightly below average amid interest rate uncertainty, according to the National Federation of Independent Business.
The Small Business Optimism Index increased 2.1 points from May to 97.4, nearing its 52-year average of 98.0. The index has been below average for four straight months. The index tracking uncertainty fell two points to 89, 21 points higher than its historical average of 68. NFIB attributed the drop to fewer owners being uncertain over capital expenditure plans. Fifty-seven percent ranked the health of their business as good, while 28 percent listed it as fair. Ten percent listed the condition of their business as excellent, while 5 percent described it as poor.
Owners expecting business conditions to improve in the next six months increased 10 points to a net 13 percent. Eight percent said it was a good time to grow their business, up one point from May.
Lower oil prices after a spike in the initial stages of the war in Iran are a relief for small businesses, as the rise had caused businesses to raise prices, said the authors of the report, NFIB Chief Economist William C. Dunkelberg and Research Center Executive Director Holly Wade. Still, inflation higher than the Federal Reserve’s 2 percent target means the FOMC is unlikely to reduce interest rates this year. Owners are still cautious over hiring and capital spending as the economy grows at a modest rate, the authors added.
“Borrowing costs are expected to remain elevated, limiting access to affordable financing for many small firms,” wrote Dunkelberg and Wade. “High interest rates continue to affect everything from equipment purchases and inventory financing to real estate and expansion plans.”
Twenty-one percent of owners cited inflation as their most pressing issue last month, up three points from May and its highest reading since fall 2024. Nineteen percent listed taxes as their No. 1 issue. Owners raising average selling prices rose two points last month to a net 38 percent, its fourth straight increase and the highest mark since January 2023.
The employment index was flat, at 100.2 in June. Nineteen percent of small business owners cited labor quality or availability as their most pressing issue in June, up six points from May’s nearly 10-year low. Eight percent of owners listed labor costs as their No. 1 problem, down six points from May’s record high. Thirty-two percent of owners had job openings they could not fill last month, up three points from May’s six-year low. Twenty-seven percent had openings for skilled workers, while 12 percent had openings for unskilled labor, up three points.
A seasonally-adjusted net 11 percent expect to create new jobs in the next three months, up two points from May. Sixty-two percent were hiring or trying to hire last month, up seven points from May. More than half had few or no qualified applicants for the positions. A seasonally adjusted net 28 percent raised compensation, down three points from May and its lowest reading of 2026. A net 17 percent expect to raise compensation in the next three months, down one point from the previous month.
Other report findings included:
A seasonally-adjusted net negative 4 percent of owners saw higher nominal sales in the past three months, up one point from May. Owners expecting higher real sales volumes over the next quarter increased eight points to a net 9 percent.
Fifty-one percent made capital outlays in the last six months, down four points from May. Of those, 33 percent spent on new equipment, 25 percent acquired vehicles and 10 percent improved or expanded facilities. Twenty percent expect to make capital outlays in the next six months, up four points from May and its highest reading of the year.
The frequency of positive profit trend reports fell five points from May to a net negative 20 percent. Of owners seeing lower profits, 27 percent cited weaker sales, 17 percent listed rising material expenses and 14 percent reported price changes.
