Optimism among small business owners bounced back in July as expectations for business conditions, real sales and expansion made solid gains. The NFIB Small Business Optimism Index rose 1.4 points to 104.7, with seven of 10 components advancing, two falling and one remaining unchanged. The Uncertainty Index fell 10 points, reversing a surge in June that reached the highest level since March 2017.

“While many are talking about a slowing economy and possible signs of a recession, the third largest economy in the world continues to defy expectations, generating output, creating value and expanding the economy,” said NFIB President and CEO Juanita D. Duggan. “Small business owners want to grow their operations, and the only thing stopping them is finding qualified workers.”

In addition to improvement in expectations for business conditions, real sales and expansion, key findings from the July index include:

• Small business owners’ plans to create new jobs and make capital outlays advanced and earnings trends improved, supported by a solid improvement in sales trends.
• Plans to order new inventories posted a solid gain.
• After surging last month, reports of higher average selling prices stabilized, with no evidence of a pickup in inflation.
• Credit conditions remain very supportive, interest rates on loans are historically low, and there are few complaints about credit availability.

“Contrary to the narrative about impending economic doom, the small business sector remains exceptional. This month’s index is a confirmation that small business owners remain very optimistic about the economy but are being hamstrung by not finding the workers they need,” said NFIB Chief Economist William Dunkelberg.

Expectations for better business conditions increased five points while those reporting the current period as a good time to expand advanced two points. The net percent of owners expecting higher real sales volumes rose five points to a net 22 percent of owners.

Up three points from last month, 57 percent of owners reported capital outlays. Of those making expenditures, 41 percent reported spending on new equipment (up one point), 25 percent acquired vehicles (up three points), and 16 percent improved or expanded facilities (up four points). Six percent acquired new buildings or land for expansion, and 12 percent spent money for new fixtures and furniture.

The frequency of reports of positive profit trends improved three points to a net negative four percent reporting quarter on quarter profit improvements, historically strong. Thirty-one percent of those reporting weaker profits blamed sales (up four points), 14 percent blamed labor costs (up two points), and 10 percent cited lower selling prices (up one point). For those owners reporting higher profits, 57 percent credited sales volumes (down 10 points from last month), and seven percent credited higher selling prices.

Unchanged from June, a net seven percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, which is a very solid reading. Consumer sentiment has improved in recent months, and revised government data confirm what small business owners have been reporting. Consumer spending is solid.

The net percent of owners raising average selling prices fell one point to a net 16 percent (seasonally adjusted), following a seven-point surge in June. Eight percent (unadjusted) reported lower average selling prices, and 25 percent reported higher average prices. Price hikes were the most frequent in wholesale trades (13 percent lower, 25 percent higher), retail trades (eight percent lower, 31 percent higher), agriculture (17 percent lower, 27 percent higher), and construction (seven percent lower, 32 percent higher). These segments of the economy are likely to be feeling the impact of tariffs.

Unchanged from last month and historically low, three percent of owners reported that all of their borrowing needs were not satisfied. Twenty-eight percent reported that all credit needs were met (down one point), and 56 percent said they were not interested in a loan (up one point). Two percent reported that their last loan was harder to get than the previous one, which is one point above the record low. Credit conditions are about as supportive as they have ever been in the 46-year survey history.

Small business owners were asked in the July survey if a 100-basis point reduction in borrowing costs would change their capital spending plans over the next 12 months. Twelve percent said “yes,” and 21 percent said “no.” Twenty-four percent were not sure, and 43 percent were not planning on borrowing money.

As reported in the NFIB Jobs Report, business job creation slowed in July, falling to an average addition of 0.12 workers per firm. A record 26 percent of small business owners surveyed cited the difficulty of finding qualified workers as their single most important business problem.

View the NFIB Small Business Economic Trends Survey here.