Small Business Optimism Creeps up but Inflation Concerns Persist

Optimism among small business owners is climbing, though it’s hard to call them “optimistic.”

That’s according to the latest edition of the National Federation of Independent Business (NFIB) Small Business Optimism Index, released Tuesday (July 9).

It shows that while the index reached its highest reading of the year last month at 91.5 — up 1% from May — that figure has still been below the historical average of 98 for 30 straight months.

“Main Street remains pessimistic about the economy for the balance of the year,” Bill Dunkelberg, the federation’s chief economist, said in a news release.

“Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”

According to the report, inflation remains the number one issue for small businesses, with 21% naming it as their chief problem, compared to 22% in May.

Among the other key findings in the report, 22% of business owners said they planned to increase compensation in the next three months, a four-point increase since May.

A net negative 2% of business owners (that figure is seasonally adjusted) said they plan to make inventory investment in the coming months, up four points from May, while 52% reported capital outlays in the last six months, the lowest reading since August 2022.

And 4% of business owners said their borrowing needs were not completely satisfied, up one point from the prior month and the highest reading since August 2022.

That’s in keeping with research by PYMNTS Intelligence from earlier this year, which showed that a third of Main Street business owners said loan costs remained a concern for this year.

Ninety percent of small to medium-sized businesses (SMBs) said they had relied on at least one type of borrowing tool through 2023, while, 73% of SMBs turned to revolving credit products — such as credit cards and lines of credit — making these the most popular borrowing method.

Additional research found that at the midpoint of last year, just 47% of SMBs with yearly revenues of $10 million or less said they had access to business or personal financing.

Meanwhile, older SMBs seem to be an exception to the growing revenues uplift small businesses are seeing — at least into the current year. Those businesses that have been doing business on Main Street for more than 20 years are seeing a decline in growth when compared to their younger counterparts.