U.S. small-business confidence increased to a six-month high in June, but inflation worries lingered amid a rise in the share of owners planning to raise compensation for workers over the next three months.
The National Federation of Independent Business (NFIB) said on Tuesday its Small Business Optimism Index climbed 1 point to 91.5 last month, the highest level since last December.
Nonetheless, June marked the 30th straight month that the index stayed below the 50-year average of 98 as inflation concerns remained on the radar and higher borrowing costs weighed on capital investment.
A net 22 per cent of businesses planned to increase compensation in the next three months, up 4 points from May. That was despite 37 per cent of owners reporting job openings they could not fill, down 5 points from May.
The NIFB, however, noted that the labour market remained tight in the construction, transportation, and retail sectors. About 16 per cent of businesses reported unfilled positions for unskilled labour, an increase of 2 points from the prior month.
In contrast, the share of owners reporting open vacancies for skilled workers dropped 6 points to 31 per cent. Job creation plans were unchanged.
The overall labour market is loosening up amid restrictive monetary policy, with government data last week showing there were 1.22 job openings for every unemployed person in May. The unemployment rate rose to a 2-1/2-year high of 4.1 per cent in June.
The share of small businesses raising average selling prices increased 2 points to 27 per cent in June. But the proportion planning price hikes slipped 2 points to 26 per cent.
“Demand is still too strong to trigger widespread price reductions,” said Bill Dunkelberg, NFIB chief economist. “Rising labour costs are keeping pressure on price decisions, but the frequency of compensation increases is falling as well, a favourable development for the inflation fight.”
Government data on Thursday will likely show consumer prices nudging up 0.1 per cent in June after being unchanged in May, according to a Reuters survey of economists. The annual increase in consumer inflation is forecast to have slowed to 3.1 per cent in June from 3.3 per cent in May.
The Federal Reserve has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July. The U.S. central bank raised its policy rate by 525 basis points since 2022 to quell inflation.
Higher borrowing costs are constraining capital expenditure, with the share of small businesses reporting capital outlays in the last six months dropping 6 points to 52 per cent, the lowest level since August 2022. The proportion planning capital outlays over the next six months was unchanged at 23 per cent.