Small-business owners are feeling better about the months ahead and many expect to add workers. That’s encouraging. Now we’ll watch to see whether that optimism turns into actual jobs.
Small-business owners were feeling considerably more optimistic in July.
The National Federation of Independent Business (NFIB) Small Business Optimism Index rose to 99.8, up from 97.4 in June and above its long-term average of 98.
That’s good news.
Perhaps even more encouraging was the outlook for employment. A net 20% of small-business owners said they expect to increase the number of people working for them during the next three months.
But there’s an important word in that sentence: expect.
Optimism Measures What Owners Think Comes Next
The NFIB survey is valuable because small businesses are an important part of the American economy. When their owners become more confident about the future, that can eventually translate into new equipment, expansion and additional jobs.
But today’s report measures a lot of expectations and sentiment, not economic activity that has already happened.
An owner who hasn’t hired anyone recently but expects to add one employee during the next three months can report an expected increase in employment.
That’s genuinely positive. But it doesn’t mean that employee has been hired—or even that a job has necessarily been posted yet.
So rather than dismissing today’s optimism or getting overly excited about it, we’ll do something very simple:
We’ll watch what happens next.
The Jobs Numbers Will Eventually Tell Us
Last week’s employment reports showed a considerably softer labor market than previously thought.
Private-sector hiring was weak. The official employment report disappointed. Previous months were revised lower. The labor force participation rate also declined.
At the same time, initial unemployment claims remained relatively low, suggesting employers aren’t suddenly laying off workers in large numbers.
Today’s NFIB survey gives us another piece of the puzzle.
If small-business owners follow through on their expectations and begin adding workers, we should eventually see some of that hiring show up in the monthly employment numbers.
That’s when optimism starts becoming economic activity.
Businesses May Feel Better Before Consumers Do
There’s also another side to today’s report.
Small-business owners may be increasingly optimistic about their future, but that doesn’t necessarily mean their customers feel the same way.
Many consumers are still dealing with prices that are considerably higher than they remember just a few years ago. Gasoline, groceries, insurance, housing and other everyday expenses continue to take a larger bite out of household budgets.
That can change how people spend.
It doesn’t necessarily mean people stop buying things. They may simply buy less often.
A family might wait another year before replacing an appliance. Someone might postpone a nonessential purchase. Home improvements that aren’t necessary today can wait.
Even something as ordinary as eating at a restaurant can become less frequent—not necessarily eliminating the Friday night dinner out, but perhaps going twice a month instead of four times.
Millions of small decisions like those matter to small businesses.
Two Different Views of the Same Economy
That’s what makes today’s report interesting.
Small-business owners are telling us they’re feeling better about what comes next.
Consumers may still be saying:
Let’s wait and see.
Neither side necessarily has to be wrong.
Businesses can become optimistic before consumers feel a meaningful improvement in their own finances. And improved business confidence could eventually help consumers if it leads to more investment and, importantly, more jobs.
That’s why we’ll keep watching.
Will Mike and Willie Be Among the New Hires?
There’s even a personal test of today’s report here at Good Eye Mike.
Mike and Willie have been looking for the right part-time opportunity for quite some time. The recent employment numbers help explain why that search hasn’t necessarily been easy.
If small businesses really are preparing to add employees over the next few months, perhaps we’ll begin seeing more of those opportunities.
Will employers become more flexible about part-time schedules? Will they consider experienced older workers who aren’t looking for management positions or a traditional 40-hour workweek?
The NFIB survey can’t answer those questions.
The actual job market will.
So we’ll give small-business owners credit for their improving outlook and hope they’re right.
Then we’ll watch the monthly employment reports to see whether today’s optimism turns into something consumers and job seekers can actually see.
Maybe Mike and Willie will even become part of the statistics.
The Bottom Line
Small-business optimism improved considerably in July. That’s positive news.
But optimism is an expectation about tomorrow, not proof of what has happened today.
Over the next several months, we’ll watch employment, consumer spending and business investment to see whether small-business owners follow through on the confidence they’re expressing now.
For today, though, we’ll take the good news.
Small businesses are feeling better about the future.
Now let’s see what they do with that optimism.
Willie and I appreciate every visitor to Good Eye Mike. Thank you for reading and following along as we look beyond the headlines to understand what the economy means for everyday life.
Mike & Willie 🐾