The NFIB Small Business Optimism Index held steady in June, inching down 0.2 points to 98.6. The latest reading was below the forecast of 98.7 and keeps the index above its historical average for a second straight month. The index is at the 45th percentile of the series.
Key Takeaways from June's report:
- A substantial increase in small business owners reporting excess inventories contributed the most to the index's decline.
- The net percent of small business owners expecting better business conditions declined but remains historically positive.
- Taxes were the top issue reported for small business owners for the second straight month.
- The percent of owners reporting labor quality as their top problem was unchanged, remaining at its lowest level since April 2020.
- The percent of owners reporting inflation as their top problem dropped to its lowest level since September 2021.
- Overall health of their business: Excellent (8%), Good (49%), Fair (35%), Poor (7%)
The first chart below tracks the NFIB Small Business Optimism Index since 1986, with a baseline level of 100. Notice the sharp declines in sentiment during the Great Financial Crisis and the COVID-19 pandemic. In contrast, the index showed relative resilience during the 2000-2003 Tech Bubble collapse. Following the Great Recession, small-business sentiment remained weak for an extended period, a pattern that closely resembled the past two years of pandemic-related disruptions and high inflation. Another interesting pattern to the index was the nearly identical jumps following the 2016 and 2024 elections.
The average monthly change in the NFIB Small Business Optimism Index is 1.4 points. To filter out short-term fluctuations, the chart below presents a 3-month moving average alongside the individual monthly values, represented by dots.
NFIB Small Business Survey Components
The NFIB Small Business Optimism Index is composed of 10 components. In June, four components increased, four declined, and two were unchanged.
Business Optimism and Consumer Attitudes
The next few charts are overlays of the Business Optimism Index with two of the main measures of consumer attitudes: Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index. The Consumer Confidence Index is influenced by employment and labor market conditions from the worker's perspective whereas the Michigan Sentiment Index is more focused on employment conditions from the business perspective. (For more information on how these indexes measure up against each other, check out our monthly update Two Measures of Consumer Attitudes: MCSI vs. CCI).
In our first chart comparing the NFIB Small Business Optimism Index with the Conference Board Consumer Confidence Index, we can see that the consumer measure is the more volatile of the two. Therefore, it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.
Next, we compare the NFIB Small Business Optimism Index with the University of Michigan Consumer Sentiment Index. Again, we've plotted each index on a separate axis, however in this chart, we can see that the business measure is more volatile of the two.
Despite the volatility though, we can see that these two measures of mood (business and consumer) have been highly correlated, falling and rising together for the most part. A decline in Small Business Sentiment was a long leading indicator for the first two recessions of the century, but clearly not for the Covid-19 recession.
