Greater Sales Expectations Lift Outlooks in July
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Outlooks Brighter, but Fed Cuts Still IncomingThe NFIB Small Business Optimism Index rose to 93.7 in July, its highest reading since February 2022. It’s hard to mistake this four-month string of upticks for anything other than a trend improvement in sentiment. Although the index remains below its 50-year average of 98, the outlook for business conditions shot up 18 points in July, driven by brighter sales expectations. Yet, the underlying details continue to reveal hesitancy about the demand outlook amid a cloudy economic and political landscape. The clearest takeaways from July’s survey are vital for the Fed: labor demand continues to ease and price pressures continue to fade. These soft elements of the survey measures, in concert with hard data on inflation and nonfarm payrolls, support our view that the Federal Reserve will begin cutting its policy rate next month at the September meeting.
How Do You Really Feel?
- The NFIB Small Business Optimism Index rose for the fourth consecutive month in July, indicating brightening perceptions among small business owners. At 93.7, the index is sitting at its highest reading since February 2022.
- July’s improvement appears owed to a jump in sentiment surrounding the economic outlook. Although views were negative on balance (-7% on net), the portion of firms expecting business conditions to improve shot up 18 points in July to its best reading in over three and a half years.
- July’s NFIB survey divulged more clues about the path of inflation, which appears firmly set on a downward trajectory. Inflation remained the top concern for small business owners. However, the share of respondents planning price hikes over the coming months fell to a net 24%, the lowest figure since April 2023. Although the percentage of firms raising prices remained elevated compared to pre-pandemic levels, it similarly dropped five points over the month to a net 22%.