In July, small business optimism in the United States reached its highest level in over two years, with a more positive outlook on the economy and sales prospects.

On Tuesday, August 13th, the National Federation of Independent Businesses (NFIB) in the United States announced that the small business optimism index had risen 2.2 points to 93.7, up for the fourth consecutive month and marking the longest consecutive rise since before the outbreak of the pandemic. However, this marks the 31st consecutive month below the 50-year average value of 98.

Although still pessimistic about the future business situation, the proportion of companies that expect the economy to worsen has dropped to the lowest level since November 2020.

Some analysts claim that this factor is almost entirely due to the rising confidence index, while four of the ten sub-index indicators that make up the overall confidence index also showed improvement in July. In addition to economic expectations, the net percentage of companies expecting sales growth in the next few months has risen to its highest level this year.

It is worth noting that Bank of America's chief strategist, Hartnett, previously mentioned that"a soft landing will depend on signs that a rate cut in the second half of the year stimulates market sentiment and household spending".If rate cuts can boost consumer confidence and spending, then small business confidence will be a key watch indicator:

"Small business confidence is suppressed by high financing costs (as well as taxes/regulations): If the NFIB small business confidence index, to be published next (Tuesday), rises from its previous value of 92 to above 98 (the 50-year average), this would be a major bullish signal...and vice versa."

Although the optimism index is still below pre-pandemic levels, its rise comes with good news on inflation. The report shows that the net percentage of firms planning to raise prices fell to 24%, its lowest level since April 2023. A smaller proportion of firms reported that they had already raised prices last month.

Firms continue to respond to unfavorable factors in prices, interest rates, and labor costs. Bill Dunkelberg, chief economist at the National Federation of Independent Businesses, said:

"Cost pressures, especially labor costs, continue to plague small business operations, affecting their bottom line. Owners will face unpredictable months not knowing how future economic conditions or government policies will impact them."

One-quarter of business owners cited inflation as their single biggest issue in July, up 4 percentage points from the previous month.

The report also showed that the proportion of companies that could not fill positions has increased slightly, but remains near its lowest level since early 2021, with recruitment plans stable.

In addition, NFIB also produced an index of uncertainty, which adds up the "don't knows" or "uncertainties" of businesses on six issues. This index reached its highest level since 2020.

Editor/Lambor