Prairie State Wire

The National Federation of Independent Business (NFIB) Small Business Optimism Index rose by 1.7 points in July, reaching 100.3 and surpassing its 52-year average of 98. The increase was mainly driven by small business owners reporting better business conditions and viewing it as a good time to expand their operations.

However, the Uncertainty Index climbed eight points from June to 97, indicating ongoing concerns among small business owners. Labor quality emerged as the most significant challenge, with 21% identifying it as their top issue—an increase of five points from the previous month.

“Optimism rose slightly in July with owners reporting more positive expectations on business conditions and expansion opportunities,” said NFIB Chief Economist Bill Dunkelberg. “While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% Small Business Deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”

Noah Finley, NFIB Illinois State Director, commented on how federal tax policy changes have influenced sentiment: “Small business owners are feeling more optimistic after Congress made the Small Business Deduction permanent. But they are still wrestling with uncertainty, especially here in Illinois where the Illinois General Assembly is considering additional tax hikes this fall.”

Survey data showed that in July there was an improvement in perceived overall business health: 13% rated their businesses as excellent (up five points), while 52% described them as good (up three points). The percentage rating their businesses as fair or poor declined compared to June.

Reports of poor sales increased slightly to 11%, marking the highest level since February 2021. Expectations for better business conditions improved significantly; a net 36% expected improvements—a figure well above historical averages. Sixteen percent believed it was a good time to expand their businesses.

Inflation remained a concern for some but held steady at 11%. Fewer respondents expected higher real sales volumes than actual sales figures indicate; however, both measures were below long-term averages.

Plans for capital outlays increased marginally from June but remained lower than historical norms. About one-third reported job openings they could not fill—the lowest level since December 2020 but still above average levels seen over past decades. Of those hiring or attempting to hire in June, most cited difficulty finding qualified applicants.

Labor costs were less frequently cited as a primary problem compared to June, dropping one point to nine percent.

A net percentage of respondents reported raising compensation or planning further increases over coming months—both measures decreased from prior readings.

Capital spending picked up modestly: Fifty-five percent reported expenditures over six months—up five points from recent lows—with spending focused primarily on equipment purchases and facility improvements.

Sales trends showed some weakness: A net negative nine percent reported higher nominal sales over three months (down four points), while inventory gains remained negative but unchanged from June levels.

Price increases continued but at a slower pace; plans for future price hikes also eased somewhat relative to prior surveys.

Profitability reports stayed largely unchanged; weaker sales were cited most often by those seeing declining profits while higher sales volumes drove profit gains for others.

Concerns about financing and interest rates grew slightly but remain relatively low historically. Regular borrowing activity declined modestly among respondents while loan accessibility generally improved or stayed steady compared to earlier periods.

Taxes dropped two points as a leading concern among small business owners but remained second overall behind labor quality issues. Regulatory burdens also eased slightly according to survey responses; competition from large firms became less pressing for most respondents during July’s survey period.

The NFIB Research Center has conducted these economic trend surveys since late-1973 using randomly selected members each month and releases findings regularly every second Tuesday.