Confidence improves, but risks weigh on outlook
U.S. small-business sentiment improved in July, with owners more positive about current conditions but increasingly wary about the future. The National Federation of Independent Business reported Tuesday that its Small Business Optimism Index rose 1.7 points to 100.3, reflecting better views on expansion opportunities and overall business climate.
Despite the rebound, the survey’s Uncertainty Index surged eight points to 97, its highest in over a year. The NFIB attributed the growing unease to rising tariffs, persistent inflation, and geopolitical tensions, including the conflict in Gaza. Such factors, the group said, are clouding decision-making around hiring, pricing, and investment in plant and equipment.
Tariffs and cost pressures hit sentiment
Economists have warned that President Donald Trump’s trade policies — characterized by broad import duties — are raising costs for both businesses and consumers. NFIB respondents echoed that concern. A fabricated metal products manufacturer reported that “increased costs are affecting everyone” and warned that recovery could take six to 12 months, testing the resilience of smaller firms.
Agricultural businesses also expressed strain. One corn and soybean producer noted prices remain below profitable levels, reducing the incentive to secure forward contracts. “I usually contract 50% or more ahead, but prices have not been at profitable levels; therefore, I have contracted next to nothing,” the respondent said.
Labor quality emerges as top challenge
The share of owners citing poor sales as their most pressing problem rose to its highest level since February 2021. Meanwhile, concerns about labor quality intensified. Twenty-one percent of small-business owners identified it as their single most important issue, up five points from June, making it the top-ranked challenge in the survey.
The Trump administration’s stepped-up deportations of undocumented immigrants have further tightened the labor market, reducing the available workforce for sectors such as agriculture, construction, and manufacturing. This shortage is compounding hiring difficulties for small firms already struggling to find qualified candidates.
Balancing optimism and caution
While the headline optimism reading suggests small businesses remain resilient, the rise in uncertainty underscores the fragile balance between hope for growth and concern over economic headwinds. With tariffs, labor shortages, and weak commodity prices weighing on sentiment, business owners are treading carefully as they plan for the remainder of the year.
