Small business optimism climbed in June as the National Federation of Independent Business (NFIB) reported a 2.1-point increase in its Small Business Economic Trends index, reaching 97.4. The reading sits close to the group’s 52-year average of 98.0, suggesting a slight recovery in confidence even as economic headwinds remain.
Seven of the 10 components of the index moved higher, with owners reporting stronger expectations for business conditions and higher projections for real sales. While confidence has improved, the NFIB Uncertainty Index actually fell two points to 89. This figure remains well above the historical average of 68, indicating that owners still view the future as a risky place.
Hiring remains a persistent issue for many operators. The Employment Index dropped to 100.2, marking the fourth consecutive monthly decline. A net 32% of owners reported having job openings they could not fill, a three-point increase from May. Labor quality has become a significant concern, with 19% identifying it as their most significant business issue, the highest level in recent months.
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However, relief is visible in labor cost pressures. Only 8% of owners cited labor costs as their top concern, a six-point drop from the record high in May. Wage increases have also slowed, with a net 28% of businesses raising compensation in June, the lowest level recorded this year.
Capital spending plans strengthen
Business owners appear more willing to invest in the coming months. A net 20% plan capital expenditures over the next six months, the highest reading for 2026 and four points higher than in May. This shift comes as sales expectations also improved, with a net 9% of owners anticipating higher real sales in the next quarter.
Profitability is a different story. A net 20% reported declining earnings due to rising material costs, softer sales, and pricing pressures affecting margins. Despite these challenges, most owners remain confident in their operations, with 67% rating their business’s health as excellent or good.
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While the second half of the year begins, the path forward involves handling a complex mix of inflation and interest rates. Inflation has returned as the primary challenge for small businesses, ranking as the single biggest problem for 21% of owners, the highest level since October 2024. Businesses raised prices at the fastest pace in three years, with a net 38% reporting higher selling prices.
The NFIB noted that lower oil prices have helped reduce transportation and delivery costs for some businesses. This relief may offer a temporary buffer, but the Federal Reserve is likely to remain cautious about lowering interest rates. Persistent inflation means borrowing costs may stay high for many small firms. The average interest rate on short-term loans dropped to 7.4% in June, the lowest level since October 2022, yet borrowing activity remains quiet. Only 22% of owners reported regular borrowing, well below the historical average, and more businesses expect credit conditions to worsen rather than improve in the coming months.
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