U.S. small-business sentiment rebounds as inflation pressures intensify

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US small-business sentiment rises

Highlights

NFIB Small Business Optimism Index rises 2.1 points to 97.4 in June, nearing the 52-year average of 98.0 amid easing fuel costs.
Gasoline prices climb to $3.87/gallon after truce collapses, with 21% of business owners now citing inflation as their top concern, the highest in nearly two years.
Labor market remains tight as 32% of owners report unfilled job openings and 11% plan to create new jobs despite softer employment growth.

June survey shows firmer confidence and persistent cost strain

As reported by Reuters, citing the National Federation of Independent Business, its Small Business Optimism Index rises 2.1 points to 97.4 in June, moving closer to the 52-year average of 98.0. The group's uncertainty index falls 2 points to 89, though it stays well above its historical average of 68.

The improvement in sentiment likely reflects lower gasoline prices during a brief ceasefire between the U.S. and Iran, which had offered some relief to businesses and consumers. That truce collapses last week after commercial tankers come under fire in the Strait of Hormuz, triggering military strikes between the two countries.

Gasoline prices then rise again, with AAA data showing an average of $3.87 a gallon on Monday, up from $3.80 a week earlier. Twenty-one percent of owners say inflation is their single most important business problem, up 3 points from May and the highest share in nearly two years.

The share of owners reporting higher average selling prices increases 2 points to 38%, the highest reading since January 2023 and the fourth straight monthly gain. But the share planning to raise prices over the next three months eases 2 points to 32%, reinforcing cautious economist expectations that inflation likely peaks in May.

A Reuters survey of economists shows the government is expected to report on Tuesday that the Consumer Price Index rises 3.8% year over year in June after increasing 4.2% in May, which is the largest gain since April 2023. NFIB Chief Economist Bill Dunkelberg says lower fuel costs provide welcome relief and that firms expect better operating conditions over the next six months.

Hiring remains difficult despite softer labor growth

Small business employment eases for a fourth straight month, with the survey's jobs index slipping to 100.2 from 100.3 in May. The softer reading follows a government report this month showing a sharp moderation in June job growth, with April and May nonfarm payrolls revised significantly lower.

At the same time, labor shortages persist across smaller firms. The share of owners reporting unfilled job openings rises 3 points to 32%, while the proportion planning to create new jobs in the next three months increases 2 points to 11%.

There is also a 7-point jump in the share saying they hire or try to hire in June, with roughly half reporting few or no qualified applicants, the biggest share since September 2024. Comments from respondents suggest the high cost of living is adding to worker scarcity, including concerns in Indiana about employees struggling to find affordable rentals and in California about housing costs making wages insufficient.

Our earlier coverage on the U.S.–Iran escalation around the Strait of Hormuz explained how renewed military action and tanker attacks lifted crude to about one-month highs and injected a fresh geopolitical risk premium into energy markets. We also noted that falling tanker traffic through Hormuz heightened uncertainty over potential supply disruption, with the next move in oil hinging on whether shipments continue to flow.

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