US small businesses are doing better with the economy, but they still aren’t finding enough talent

Washington, D.C
CNN
—

US small businesses note slightly better business conditions and are less pessimistic While they don’t look to the future of the economy, they remain gloomy about hiring new employees, according to a survey released Tuesday by the National Federation of Independent Business.

As inflation continued to slow over the past month, optimism improved among the more than 1,300 small businesses surveyed, although it remains muted compared to pre-pandemic times. The proportion of owners expecting better business conditions over the next six months rose 10 points from June to a net negative of 30%, “the highest since August 2021 but historically very negative,” according to a press release.

There was no major improvement in hiring in July: 42% of owners said they had vacancies that were difficult to fill, a change from June. 92% of owners who were hiring or attempting to hire said there were few or no qualified applicants for their available positions, also unchanged from the previous month.

“Given small business owners’ gloomy views about future revenue growth and business conditions, owners now want to hire new employees and monetize solid consumer spending,” said Bill Dunkelberg, chief economist at NFIB, in a press release. “Inflation has eased slightly on Main Street, but difficulties in hiring staff remain a major concern for businesses.”

The US job market has gradually cooled this year, which is what the Federal Reserve is aiming for as part of its continued inflation-fighting strategy. Employers added 187,000 jobs in July, the second weakest monthly gain this year, while job vacancies fell to their lowest level in more than two years in June. The number of job vacancies still dwarfs the number of jobseekers looking for work, indicating persistent imbalances in the labor market.

At the same time, the economy as a whole remained on a strong footing. Gross domestic product, the broadest measure of economic output, grew at an annual rate of 2.4% in the second quarter, faster than the 2% seen in the first three months of the year. Consumer spending rose 0.5% in June after more moderate growth in the previous four months.

Although the economy remains resilient, optimism among small businesses is not back to what it was before the pandemic. The latest NFIB survey found that the proportion of entrepreneurs expecting higher real sales rose two points from the previous month to -12% in July, still “a very pessimistic outlook”.

Still, polls have shown that the resilience of the economy, coupled with the steady slowdown in inflation over the past few months, has boosted US consumer and business sentiment this summer as the broader economy remained resilient under the weight of the Fed’s aggressive hike-rate campaign. Although companies are still struggling to hire staff, cooling inflation has eased the situation somewhat.

It’s unclear if that optimism will hold up beyond the summer. Gas prices – indicators of inflation clearly visible to consumers – have risen in recent weeks, which could lead to a slight increase in headline inflation. The Federal Reserve Bank of Cleveland estimates that inflation picked up in July and August. The Labor Department will release inflation data for July on Thursday.

Student loan payments will resume later this year, and Americans will eventually struggle with the debt they’ve racked up this year. Wall Street bankers and investors are optimistic that the economy can avoid a recession, but economic headwinds lie ahead.