NFIB survey finds small business optimism rising across industries

Small business optimism improved across four major industries in July, according to a new National Federation of Independent Business survey, although labor shortages, supply chain disruptions and weaker expectations in some sectors continued to pose challenges.

The NFIB Research Center’s quarterly industry-specific Small Business Economic Trends survey examined construction, manufacturing, retail and services businesses. The Optimism Index rose from April in all four industries, with construction and manufacturing reporting optimism above their historical averages.

The overall Optimism Index for the four industries was 99.8 in July. Manufacturing posted the highest reading at 104.3, surpassing its historical average of 101.1. Construction followed at 104.2, up 4.4 points from April. Retail was the least optimistic sector at 94.8, while services also remained below the overall level for all firms.

NFIB Research Center Executive Director Holly Wade said the results showed improvement from the previous quarter despite continuing obstacles.

“Small business optimism improved in all industries after April’s slump,” Wade said. “While most metrics improved, many owners are reporting supply chain disruptions and difficulty finding qualified employees. Despite some challenges, Main Street is feeling more confident about economic conditions and the health of their business.”

Labor availability remains a particular concern for small businesses, including those in Alabama, according to NFIB State Director Rosemary Elebash.

“The Alabama Department of Labor just reported that the workforce participation rate in Alabama was 56.9 percent in July,” Elebash said. “That was well below the national average of 61.4 percent. This labor shortage makes it harder for small businesses in every sector to compete, serve their customers and support their communities.”

Construction firms reported some of the strongest hiring demand in the survey. Fifty-three percent of construction business owners reported at least one unfilled job opening, up 7 percentage points from April and the highest rate among the industries examined. A net 28 percent said they planned to increase employment over the next three months.

The report also showed the difficulty construction businesses are having finding workers. Forty-six percent identified labor quality or availability as their single most important problem, while 58 percent reported having few or no qualified applicants for open positions.

Despite those hiring plans, construction earnings trends weakened. The net percentage of firms reporting higher earnings fell 8 points from April to negative 19 percent in July, reversing gains recorded earlier in the year.

Manufacturing recorded the largest increase in optimism, with its index rising 6.3 points from April to 104.3. The sector also led all four industries in earnings trends, sales expectations and plans to increase employment. A net 30 percent of manufacturers said they planned to add workers in the next three months, while a net 24 percent expected real sales to increase.

Retailers, however, saw only a modest increase in optimism. The sector’s index rose 0.7 points to 94.8, remaining below its historical average of 96.1. Expectations for higher real sales dropped 16 points from April to a net negative 7 percent, although the share of retailers reporting unfilled job openings increased 11 points to 37 percent.

Although optimism in the services industry increased by only 1 point, the sector saw the largest improvement in expectations for overall business conditions, rising 13 points to a net 15 percent. Still, expectations for higher sales and plans to increase employment both declined from April, making services the only industry in the survey to report a quarterly decrease in hiring plans.

Across the industries surveyed, supply chain issues also remained widespread. Sixty-three percent of small business owners said disruptions had affected their businesses to some extent, only 1 percentage point lower than in April.

At the same time, 69 percent of small business owners rated the overall health of their businesses as excellent or good, up 2 points from the previous quarter.