At a Glance

  • A survey by the U.S. Chamber of Commerce found that persistent inflation became the biggest concern for small business owners in the second quarter, weakening their confidence.
  • Concerns about price pressures outweighed small businesses' worries about supply chain challenges, borrowing costs, revenue trends, labor talent shortages, and employee benefit costs including healthcare. The Chamber said 57% of business owners listed inflation as their top concern, up from the first quarter.
  • 69% of business owners said their small businesses were doing well, 66% expected revenue to grow next year, and 35% expected to expand their workforce over the same period. Meanwhile, only 33% of small business owners rated the local economy as "good," down 8 percentage points from the first quarter.

Deep Insights

Data released Tuesday by the Bureau of Labor Statistics showed consumer prices rose 3.5% year-over-year last month, below the expected annual rate and also below May's 4.2%. Shortly before the data release, Federal Reserve Chairman Kevin Warsh pledged to slow inflation to the central bank's 2% target.

The Bureau of Labor Statistics reported that a 5.7% drop in energy prices in June (including a 9.5% decline in gasoline prices) was the main reason for the easing price pressures. Consumer prices excluding volatile food and energy were flat last month and rose 2.6% over the 12-month period.

Although inflation has cooled, the Conference Board's Leading Economic Index (LEI) fell 0.2% in June to 99.1, following a 0.1% rise in May.

However, Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at the Conference Board, said in a statement Monday that the LEI's six-month and twelve-month growth rates remained stable.

"Consumer spending is weakening, but strong business investment related to artificial intelligence is expected to support economic activity while inflation continues to improve," she said, noting that the Conference Board has raised its GDP growth forecast for this year from 1.8% to 1.9%.

The National Federation of Independent Business said improved expectations for sales and business conditions in June pushed the Small Business Optimism Index up to 97.4, a 2.1-point increase from May.

Nevertheless, the index remained below its historical average for the fourth consecutive month, which the National Federation of Independent Business said Tuesday is consistent with the weak confidence noted by the U.S. Chamber of Commerce.

"Current economic conditions present small business owners with encouraging developments and ongoing challenges," said Bill Dunkelberg, chief economist at the National Federation of Independent Business, in a statement.

"Lower fuel costs provide welcome relief for businesses and consumers, and businesses expect improved business conditions over the next six months," he said.

"Despite the improved overall environment, high interest rates and moderate economic growth are leading owners to be cautious in hiring and capital expenditures," Dunkelberg said.

According to forecasts from interest rate futures traders, rates may rise in the coming months. Traders on Monday saw an 83.1% likelihood that the Federal Reserve will raise interest rates by at least 25 basis points before the end of the year, based on the CME Group's FedWatch tool.