According to a recent survey, U.S. small-business confidence rose to a six-month high in June. Even though inflation worries persisted, more owners are planning to raise worker compensation in the next three months. The National Federation of Independent Business (NFIB) reported on Tuesday that its Small Business Optimism Index increased by 1 point to 91.5, the highest level since last December. However, June marked the 30th consecutive month that the index remained below the 50-year average of 98, as inflation concerns and higher borrowing costs continued to impact capital investment.
A net 22 percent of businesses planned to increase compensation in the next three months, up 4 points from May, even though 37 percent of owners reported job openings they could not fill, a decrease of 5 points from May. The NFIB noted that the labor market remained tight in the construction, transportation, and retail sectors. About 16 percent of businesses reported unfilled positions for unskilled labor, a 2-point increase from the previous month.
In contrast, the proportion of owners reporting open vacancies for skilled workers fell by 6 points to 31 percent, with job creation plans remaining steady. The overall labor market is easing under restrictive monetary policy, as government data revealed 1.22 job openings for every unemployed person in May. The unemployment rate climbed to a 2.5-year high of 4.1 percent in June.
Meanwhile, the percentage of small businesses raising average selling prices rose by 2 points to 27 percent in June, though the share planning future price hikes decreased by 2 points to 26 percent.
"Demand remains too strong to trigger widespread price reductions," said Bill Dunkelberg, NFIB chief economist. "Rising labor costs continue to influence pricing decisions, but the frequency of compensation increases is declining, which is a positive sign for controlling inflation."
Government data on Thursday is expected to show a 0.1 percent increase in consumer prices for June, following no change in May, according to a Reuters survey of economists. The annual rate of consumer inflation is projected to slow to 3.1 percent in June from 3.3 percent in May.
The Federal Reserve has held its benchmark overnight interest rate at 5.25 percent-5.50 percent since last July, after raising it by 525 basis points since 2022 to curb inflation.
The higher borrowing costs are restricting capital expenditure, with the share of small businesses reporting capital outlays in the past six months dropping by 6 points to 52 percent, the lowest since August 2022. The proportion planning capital outlays in the next six months remains unchanged at 23 percent.
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