Confidence among small businesses in the United States fell in June, driven by excess inventory, trade policy uncertainty and increasingly gloomy sales expectations. The NFIB Small Business Optimism Index fell to 98.6, with a sharp increase in businesses reporting “too high” inventory, nearly doubling from the previous month. Only 7% of respondents expected sales to increase in the next three months, down from 10% in May.
Assessments of the health of their respective businesses also declined. Only 49% of owners rated their businesses in “good” condition and 8% “excellent,” compared to 55% and 14% previously. At the same time, the uncertainty index fell 5 points to 89, still a historically high number, but the lowest for the year. The NFIB report noted that political sentiment also weighed on confidence: Republicans were more optimistic while Democrats showed disappointment, following the implementation of President Trump’s new economic bill.
Trump announced that Japan and South Korea will be subject to 25% tariffs starting August 1, adding to the pressure on already nervous small businesses. While tariffs and trade issues were not officially listed in the survey as a top concern, they are seen as a major contributor to the uncertainty. Meanwhile, taxes remain the number one concern, followed by subdued inflation, which is now at its lowest level since 2021.
The labor market is also showing signs of softening. The share of employers raising compensation rose to 33%, although plans to raise wages in the near term fell slightly. The shortage of quality workers continues to plague, mirroring a similar situation to the early days of the COVID-19 pandemic. While there is still some optimism about the future, most businesses are now in a cautious phase, awaiting certainty in economic and trade policies.
