Ep. 10: June Data: Small Business Optimism Improves, Inflation Ranks as Top Problem

Co-Hosts Holly Wade and Peter Hansen dive into the June Small Business Economic Trends (SBET) report. Optimism rose 2.1 points to 97.4 as lower fuel costs provide welcome relief for businesses as well as consumers. Inflation ranks as small business owners’ top problem, up 3 points from May and at its highest since October 2024. Holly and Peter unpack this plus a rebound in hiring signals after May's anomalous dip.

Learn more about the Small Business Economic Trends report and small business expectations at NFIB.com/SBET

Key highlights include: 

• Index jumps 2.1 points; sales expectations, capital spending, and business-conditions outlook all climb (0:27)
• Inflation ticks up for a fourth straight month even as fuel prices retreat (1:31)
• Employment Index holds flat at 100.2 (7:10)
• Labor questions outside the core index reverse May's anomalous swings (8:56)
• What the data means for the Fed under incoming chair Kevin Warsh, plus what to watch in July (17:33)

Transcript

SPEAKER_00 0:00

Welcome to Small Business by the Numbers. I'm Holly Wade, the Executive Director of the NFIB Research Center, and joined by my coworker, Peter Hansen, who's the director of research and policy analysis. Hi, Peter.

SPEAKER_01 0:14

Hey, Holly.

SPEAKER_00 0:16

So we have the June numbers of our monthly survey of small business owners, and there's a lot to talk about. So I'll start off just giving the headline measure, our

Index jumps 2.1 points; sales expectations, capital spending, and business-conditions outlook all climb

SPEAKER_00 0:27

Small Business Optimism Index clocked in at 97.4, and that's up 2.1 points from May. And we're inching closer to the 52-year average of the index. It's the headline measure of how we see or evaluate the small business economy out there. And just to give a bit of flavor to what that looks like as far as the components, there's 10 components within the index. And the three biggest movers, sales expectations, improved eight points, capital expenditure plans increased four points, and the big one, better business conditions. So how they are seeing conditions in the next six months improved 10 points. So a lot of moving parts in there, and one of the bigger ones, obviously, is that better business conditions. And I think that has probably to do a lot with inflation. So if you want to talk a bit about that, I think that's the big story this time around.

Inflation ticks up for a fourth straight month even as fuel prices retreat

SPEAKER_01 1:31

Absolutely. Let's set the scene a little bit on inflation specifically. High levels in consumer price index, that was 4.2% in May. The PCE, personal consumption expenditures, the Fed's preferred index, also at quite a high level, 4.1% in May. Those levels are more than double the Fed's targets. They are significantly up since the start of the year. They are heading in the wrong direction as of that May data. So it's a pressured context. And the reason why when we were talking last month on this podcast, we were talking about potential cracks strain. And you covered the headlines, that's starting to transform. So get into that S-bet data here. What are small businesses telling us on inflation? How is that transitioning right now in this latest June data?

SPEAKER_00 2:28

So as you mentioned, the CPI above the Fed's target of 2%, and it's flowing through. We're seeing it in our data. And small business owners are really feeling the pressure of those higher input costs in operating their business. So right now for the June data, those raising prices, that was up two points from May, up 14 points from February. So right now we're at a net 28 percent of small business owners saying that they increased prices over the last quarter. And those planning to increase prices, that was down two points from May, but up eight points from February. And right now we're sitting at a net 38 percent of small business owners say that they're planning to increase prices in the next quarter. So those higher input costs with the CPI report, 40 percent increase over the last 12 months of gas prices. And that's the big headline price commodity that we know small business owners use a lot of gas, whether it's for deliveries, things like that. And those are real issues that they've had to deal with.

SPEAKER_01 3:42

Good news is gas prices have tilted back downwards a lot in the last month. So we're seeing gas prices come about 50 percent of the way back down. They're around $3 in February, up to about 450 at peak, maybe around 375 current data. So it's about about halfway in between. Oil prices, actually like the raw input looking a bit better. Those are actually nearly back to where they were in February. But it is also like gasoline's kind of a midpoint. Oil's maybe a little bit more optimistic. Traffic through the strait is a little bit more pessimistic, showing that, okay, things aren't fully resolved. There's still that pressure. And I think one thing on costs in the data that you didn't mention just yet, Holly, is the single most important problem data where inflation ticked up again three points in May. It's fourth consecutive month of sliding upwards. It's now the top issue. It's at the highest level since October, it's up nine points since January. Okay. It's reasonably negative.

SPEAKER_00 4:45

Trevor Burrus, Jr.: One in five small business owners saying that that's their biggest problem in operating their business. And we made such progress before, closing out 2025, but now it's really a big pressure point for small businesses.

SPEAKER_01 4:58

Aaron Powell And the one positive point, because we we we've hammered some like inflation's up, PCE, CPI, the actual prices, the single most important problem. But I want to emphasize there is a note of positivity in here. You mentioned plans to raise prices, those are down. And we see that related to gas prices coming down, oil prices coming down. Hopefully we've turned the corner. We're still kind of catching up to and seeing the price pressure pass through this month of June. But I think we're at a point where optimism for the future is growing. And then a way that kind of circles back to some of the index that you started us out with, where the index is up and it was really up a lot based on that better business conditions, expect the economy to prove. The vibes are a little better. The vibes are saying, hey, we're turning the corner here. So there is optimism, even if inflation has become a problem in a way that it hasn't been for not a super long time, but since a recent and significant era for inflation.

SPEAKER_00 6:07

And that's likely due to small business owners noting that oil prices are falling and consumers have more money in their pocket, and so they're not as stressed about whether they're going to be able to continue or that their customers are still going to spend money, that they're not scaling back in any meaningful way as they can see now. But with that two-point decline in price plans, it'll be interesting to see next month to see if actual prices start slowing down too, that a lot of that higher gas prices have flowed through, they've accommodated for that, and they're basically set as far as having to recoup those increased costs. Why don't we turn over to the next favorite topic of discussion that is on everybody's mind? And as we're recording this, the BLS came out with their data on the June numbers. But if you want to start us off with the employment landscape for small business,

Employment Index holds flat at 100.2

SPEAKER_00 7:10

yeah.

SPEAKER_01 7:10

Well, let's go straight to our employment index, that single number best metric for the small business sector, flat essentially from May to June. Now, technically it ticked down a tenth of a point. And because it ticked down, that's now the fourth consecutive month of decline. So we're at a level right now that is almost exactly the long-term average. Long-term average is 100.0. We're at 100.2. So things are kind of by that metric okay. Not great, not as good as they were last year, not as good as they were at the start of the year, but not too bad. And for the components underlying that, we saw a bit of easing in the compensation type component. So a little bit less pressure on raises for businesses, but less pressure on that counterbalanced by a little bit more movement on the hiring front. So net pretty much neutral. I would say those two underlying components are kind of moving in a favorable direction in the sense of like if you're worried about inflation, it's good to not have too much compensation pressure. And then I think it's always positive when we see small businesses hiring, everybody wants that. So great news there. So net is on that index alone, okay, relatively flat, not at a good level in the index, but at an OK level, in that we're pretty much aligned with that historical average, which is fine. Now, there's a bit of a story beyond just that index. So the index covers these kind of core central components, but there's a few ways we measure employment, the small business, labor market that aren't in that index. And there's a bit of a story there. Why don't you tell us about that, Holly?

SPEAKER_00 8:55

Aaron Powell

Labor questions outside the core index reverse May's anomalous swings

SPEAKER_00 8:56

There is. And we saw in May there was this bit of an anomaly with the data that came in. We saw some of the labor metrics or the labor questions decline quite a bit. And I don't know that we were expecting that significant a movement. Two of the areas that we saw in May, labor quality declined a number of points, and labor costs increased as a single most important problem that is of concern to small business owners. It recalibrated, let's say, and went back to the trends prior to May. So for instance, labor quality and availability of labor, that's one of the categories for single most important problem. That was up six points from May. We're back to 19 percent of them saying that that's their biggest challenge in operating their business. And labor costs, we saw that dramatic increase in May. That came back down six points to eight percent of small business. And that's more uniform to what we've seen previously to that May data said that was a bit of an anomaly, it seems now. And then job openings. We saw job openings increase three points, hiring plans increase two points. Those were good signs that the labor market still seems to be relatively strong. And again, that's in context of where we thought it might be going in May, when we saw a lot of movement on the downside with the labor situation, and whether we were thinking, well, is this going to be the beginning of some more significant deterioration in the labor market? But it doesn't appear so. Small business owners are still looking to hire, especially in those industries where they've just had such a hard time, construction, manufacturing, some services. And for those business owners, they are looking to increase staff or at least fill those open positions of turnover in their labor force. And so we saw a bit of a rebound in that space, which was interesting. On the BLS side, which we just had the June numbers come out on the BLS, in May, we saw this huge increase in the number of jobs in leisure and hospitality. Everybody was kind of talking about how that was World Cup, and we saw a complete reverse of that in June with a loss of 61,000. I mean, I thought that was just quite the swing, and who knows what this looks like for the following month, but it seems that that was also a bit of recalibration. Trevor Burrus, Jr.

SPEAKER_01 11:40

Yeah, crosstabs are hard.

SPEAKER_00 11:42

Trevor Burrus, Jr.: They are. They certainly are. In May, we saw 129,000, national increase in jobs from the BLS. In June, 57,000. So again, recalibration, it's been a little choppy over the last number of months. So it's hard to determine whether we see any sort of trend in these numbers, whether it's ours or the national numbers. But interesting to look at, especially when there's a lot of moving parts in the economy these days.

SPEAKER_01 12:14

Yeah. I'm a touch concerned. Let's say like we'll take the under on the May number going forward on the BLS side, in that I think our data trends to lead the BLS data. I mean, some of that is literally structural, like we're getting small businesses telling us their plans, and then the BLS is getting what actually then happens. The small business is like, I'm going to hire. And then it takes a while and they hire, and then it shows up in the BLS data. So there's a structural reason why our data, in theory, and I think in practice, often leads the BLS just a little bit. And I think we saw that last year, where BLS is turning down, ours is turning down, and then ours sort of ticked back up late last year and into the start of this year, and then BLS kind of followed. I think the numbers so far this year, term job counts by month, have been more positive than a lot of folks are expecting, more positive than a lot of the second half of late last year. But our numbers then kind of ticked down the last three months. And so it makes me wonder and worry what we're going to see in BLS, let's say the next three months. Not hyper concerned because as we're talking about, optimism index, somewhat turning the corner, even the employment index, it's down, but it's still at slash slightly above the long-term average. So there's not some big flashing red sign here. But it does make me that little bit concerned of can we keep up with the reasonably strong job numbers that we've seen for a lot of this year in BLS. I think our data suggests that those numbers might be hard to sustain, that like maybe that June still okay, but lower number is the more realistic level for the next few months. Probably soft take there. That's just sort of as we're talking about BLS, as we're comparing it to ours. That's my point of concern.

SPEAKER_00 13:57

Aaron Ross Powell Yeah. And I will also say that for BLS, looking at all the revisions over the last three months, they were all down. Yeah. All the revisions were down. And and by some significant numbers. And so that was a bit of a surprise for me anyway, looking at the numbers. I mean, I think that for May, the revision was around 30,000 down from the original estimates. I mean, I know that for the BLS, for every data collection agency, it's just more difficult for responses, things like that, so it often takes longer. And the revisions seem to be a bit more exaggerated than they have been in the past. But seeing the revisions all negative certainly was something notable in looking at these, as you said, fairly healthy numbers, but were downgraded just a bit from the initial estimates for this. Looking at the rest of our survey, what other areas did you see that stood out to you?

SPEAKER_01 14:58

Aaron Powell Well, I think you have to talk uncertainty. Absolutely. Trevor Burrus, Jr.: It really it dovetails with what you're talking about, like BLS data. How well do we really know what's going on? It's no surprise that small business owners who are pulled in a thousand different directions, working on a million different problems, are also having a little bit of trouble knowing exactly which way to go. Uncertainty remains very high. There's a little bit of good news there. Tick down two points. I think that's a little bit of that positive corner turning with the index ticking up 2.1 points.

SPEAKER_00 15:28

Trevor Burrus, Jr.: Yeah, feeling a little bit more confident that oil prices won't escalate further, that they're coming back down to earth a bit.

SPEAKER_01 15:35

Trevor Burrus, Jr.: Exactly. Sliding out of I don't know in the positive direction, because there's two sides to I don't know. There's there's down and there's up, and we've moved a little bit towards up. But that's not it's not a lot of movement. Trevor Burrus, we're still way above the historical average, so it remains a real problem for small businesses. Aaron Ross Powell What about you, Holly? Any last thoughts? A key takeaway from this report?

SPEAKER_00 15:59

Aaron Ross Powell One of the key takeaways, and I know we've talked about this in previous episodes, but the current health of the small business. So we asked this question, what's the current health or how do you evaluate how your assessment of your business right now? And we did see a bit of an erosion from excellent to good, but still on the positive side of answer selections for that question. But that's remained fairly stable. So while they're getting hit by all sides of shifts in economic conditions and the challenges that they face, it does appear that their business as far as customers coming in the door and purchasing their good or service is remaining pretty stable, and that's a good sign. So we saw, again, a bit of erosion from the top, from excellent to good, but otherwise we haven't seen much noise in the responses on that question over the last 12 months. And so that was one of my big key takeaways or final takeaways on a positive side, which it's nice to have the positive angle when there's a lot of disruptions going on.

SPEAKER_01 17:12

How about you? Aaron Powell I think my key takeaway relates to the transition at the Federal Reserve Board. We have a new chair, Warsh. Obviously, we have the May CPI, PCE I mentioned. But looking at this more recent data from our own survey here, okay, there's a little positivity in price plans relative to

What the data means for the Fed under incoming chair Kevin Warsh, plus what to watch in July (

SPEAKER_01 17:33

last month, but that's still high relative to February. Actual prices are still quite high relative to February. There's a lot of pressure there in that data, in that very recent data. Trevor Burrus, Jr.

SPEAKER_00 17:45

With their dual mandate of inflation and full employment. Employment doesn't seem to be deteriorating. Inflation seems to be the outlying problem. Trevor Burrus, Jr.

SPEAKER_01 17:56

Right. Employment looks okay. Inflation is clearly high in the numbers. So that's a pretty clear signal to the Federal Reserve Board. But you know, who who knows what direction we'll see there. Let's let's start to look forward, you know, to talk about the direction we're going. What are you watching for in the next month before we get the next data?

SPEAKER_00 18:16

Aaron Ross Powell Sure. So interestingly, I was just reading some articles related to trade and the USMCA, that trade agreement between the U.S., Canada, and Mexico that's been in place for 16 years in the last iteration of it. Well, it expired, actually, on July 1st. And so the renegotiations of that will start in earnest soon. I mean, obviously they've all been talking over the last number of months, if not years, about what this new configuration of a trade agreement looks like. I think there's a lot of uncertainty related to that. Doesn't directly impact a lot of small business owners, but indirectly a whole bunch of them. So what this ends up looking like will be very meaningful for many small business owners and varying degrees of impact. Where these conversations go, whether it ends up being a trilateral agreement, whether it becomes a more bilateral agreement, what the goals are for the U.S. in resolution in these negotiations, will be interesting to see where we assess the impact might be for small business owners. So that's one of the areas that I think will be something to watch out for. Well, that is a wrap for June's data. There's a lot going on in there, but we covered a lot of territory with inflation and employment. Thanks for joining us for this edition of Small Business by the Numbers and look forward to another conversation next month. Thank you.