US Small Business Optimism Reaches Six-Month High in June

Small-business optimism in the US rose to its highest level this year in June, according to the National Federation of Independent Business (NFIB). The sentiment index increased by one point to 91.5, marking the third consecutive month of improvement. Despite this positive trend, the index remains below its historical average of 98, which it has not reached for 30 consecutive months. Factors such as high prices, interest rates, and labor costs continue to weigh on overall sentiment.

The survey revealed that the share of firms expecting the economy to worsen is the smallest in three years. However, inflation remains a significant concern, with 21% of owners citing it as their primary issue. The share of businesses planning to raise compensation for workers over the next three months increased, although the labor market remains tight. Higher borrowing costs are also impacting capital expenditures, with reports of capital outlays dropping to their lowest level since August 2022. Despite these challenges, more business owners raised selling prices in June, and better inventory management contributed to the improved sentiment.

In addition to inflation, compensation costs are a concern, with a net 22% of owners planning to increase wages in the near term. The Federal Reserve's benchmark overnight interest rate remains in the 5.25%-5.50% range, contributing to the higher borrowing costs that limit business investments. Although job creation plans remained unchanged, the tight labor market and weak profit trends continue to pose challenges for small businesses.