In August, small business owners felt quite optimistic as they noted expectations for increased sales and better profits; however, there wasn’t much indication of passing on higher tariff-related costs to customers.
The National Federation of Independent Business announced that its index measuring small business optimism climbed by 0.5 points to reach 100.8, surpassing the long-term average of 98. This uptick was mainly fueled by a six-point increase in owners anticipating high actual sales.
The survey indicated a slowdown in price pressures. Only 21% of owners reported raising their average selling prices this year, marking a three-point decrease to the lowest figure observed. The forecast for price increases has also softened, with 26% expecting higher billing in the next three months. Ten percent identified inflation as their primary concern, which has remained stable for three months.
This trend hints at the possibility that tariffs may soon contribute to rising consumer prices, or that small businesses could face greater challenges due to escalating input costs. Despite this, owners are reporting healthier revenues, even as price increases are slower. Notably, a net negative of owners indicated revenue declines, the highest reading since March 2023. About two-thirds of those enjoying high profits attributed their success to stronger sales volumes rather than price hikes.
Credit conditions have also eased somewhat. The average interest rate on short-term loans dropped to 8.1%, the lowest since May 2023, alleviating some pressure on businesses and allowing them to raise prices correspondingly with rising costs. Access to cheaper funding has enabled companies to manage higher input costs without swiftly passing them onto customers.
Despite these positives, capital investment remains limited. Just 56% of owners reported making capital expenditures in the past six months—a historically low figure—indicating ongoing caution about long-term growth, even with improved short-term profits and sales forecasts.
The quality of work continues to be a significant concern, with 21% selecting it as their biggest challenge. Around a third of businesses reported unfilled job openings, the smallest proportion since 2020. While compensation packages have risen, business owners still struggle to find qualified workers.
