U.S. Small-Business Confidence Hits Six-Month High in June

3 mins read

U.S. small-business confidence reached a six-month high in June, according to the National Federation of Independent Business (NFIB). The Small Business Optimism Index increased by 1 point to 91.5, marking its highest level since December 2022. However, this is the 30th consecutive month the index has remained below its 50-year average of 98, as inflation concerns and high borrowing costs continue to impact capital investment.

A net 22% of businesses plan to increase worker compensation over the next three months, up 4 points from May. Despite this, 37% of business owners reported unfilled job openings, a 5-point decrease from the previous month. The NFIB highlighted that the labour market remains tight, particularly in the construction, transportation, and retail sectors. Unfilled positions for unskilled labour rose by 2 points to 16%, while vacancies for skilled workers dropped 6 points to 31%. Job creation plans remained steady.

The broader labour market is showing signs of loosening due to restrictive monetary policies. Recent government data indicated there were 1.22 job openings for every unemployed person in May, with the unemployment rate rising to a 2-1/2-year high of 4.1% in June.

Inflation remains a significant concern for small businesses. The proportion of businesses raising average selling prices increased by 2 points to 27% in June, although the share planning future price hikes decreased by 2 points to 26%. “Demand is still too strong to trigger widespread price reductions,” said Bill Dunkelberg, NFIB chief economist. “Rising labour costs are maintaining pressure on prices, but the frequency of compensation increases is falling, which is favourable for the inflation fight.”

Economists expect government data on Thursday to show a 0.1% increase in consumer prices for June, following no change in May. The annual rise in consumer inflation is predicted to slow to 3.1% in June from 3.3% in May.

The Federal Reserve has kept its benchmark interest rate in the 5.25%-5.50% range since last July, after raising it by 525 basis points since 2022 to combat inflation. High borrowing costs have limited capital expenditures, with the share of small businesses reporting capital outlays in the last six months dropping 6 points to 52%, the lowest since August 2022. The proportion planning capital outlays in the next six months remained unchanged at 23%.

This ongoing assessment highlights the challenges and cautious optimism within the U.S. small-business sector as it navigates economic uncertainties.