U.S. small business confidence surged to its highest level in nearly two and a half years in July, signaling that fears of a recession following last month’s rise in the unemployment rate may have been overstated. The National Federation of Independent Business (NFIB) reported on Tuesday that its Small Business Optimism Index increased by 2.2 points to 93.7, the highest level since February 2022.Â
While inflation remains a concern for businesses, fewer companies reported raising worker compensation and average selling prices, which could have positive implications for the inflation outlook. Additionally, more businesses planned to increase inventory in the coming months, a move that could bolster gross domestic product (GDP).Â
This report aligns with a recent survey from the Institute for Supply Management, which showed a rebound in its nonmanufacturing PMI, further easing concerns of an imminent recession. The economy had been under scrutiny after the unemployment rate surged to a near three-year high of 4.3% in July, sparking fears of a downturn.Â
Despite the improvement in confidence, 25% of business owners still cited inflation as their most pressing issue, up 4 points from June. This, coupled with uncertainty surrounding upcoming presidential election policies, kept the NFIB index below its 50-year average of 98 for the 31st consecutive month. NFIB Chief Economist Bill Dunkelberg noted that business owners face unpredictable months ahead, with future economic conditions and government policies remaining unclear.Â
However, the outlook for inflation appears to be improving. A net 33% of business owners reported raising employee compensation, the lowest level since April 2021 and down 5 points from June. The share of owners increasing average selling prices also dropped by 5 percentage points to 22%, reflecting easing price pressures.Â
Despite a cooling labor market, businesses continue to face a shortage of workers, particularly in the construction, transportation, and retail sectors. The NFIB reported that 38% of all business owners had job openings they could not fill in July, up 1 point from June.Â
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