Minnesota State Wire

The National Federation of Independent Business (NFIB) Small Business Optimism Index increased by 1.7 points in July, reaching 100.3, which is slightly above its 52-year average. The increase was driven by more respondents reporting improved business conditions and a greater willingness to expand their businesses. However, the Uncertainty Index also rose by eight points to 97 compared to June.

According to the latest data, labor quality emerged as the most significant issue for small business owners, with 21% citing it as their main concern—an increase of five points from June.

“Optimism rose slightly in July with owners reporting more positive expectations on business conditions and expansion opportunities,” said NFIB Chief Economist Bill Dunkelberg. “While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% Small Business Deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”

Jon Boesche, NFIB Minnesota State Director, noted that small business owners in Minnesota are seeing better conditions and a stronger interest in expanding operations. “Small business owners in Minnesota report improved conditions and a greater willingness to expand,” said Boesche. “Much of this is thanks to the 20% small business tax deduction being made permanent. Yet, the rising uncertainty in Minnesota’s economic policies, fueled by one-size-fits-all business mandates that were enacted in previous years, is making some hesitant to invest fully.”

Survey findings showed that 13% of respondents rated their overall business health as excellent and 52% as good; both figures represent increases from June. Meanwhile, those rating their situation as fair or poor declined by four and three points respectively.

The percentage of small businesses reporting poor sales as their biggest challenge rose to 11%, marking its highest level since February 2021. Expectations for better future business conditions climbed sharply: a net 36% expect improvements over the next six months—a figure well above historical averages.

In July, 16% indicated it was a good time to expand their businesses—up five points from June—and expectations for higher real sales volumes dipped slightly but remain above actual sales levels.

Plans for capital spending saw a modest rise: 22% intend outlays within six months but this remains below long-term averages. In hiring trends reported by NFIB’s monthly jobs report, a seasonally adjusted 33% had job openings they could not fill—the lowest since December 2020 but still higher than historical norms. Among those seeking workers in June, most cited few or no qualified applicants.

Labor costs fell slightly as a top problem (9%), while plans to raise compensation dropped two points from June. More than half (55%) made capital investments over the past six months.

Regarding spending specifics: new equipment purchases were reported by 38%, vehicle acquisitions by 23%, facility improvements or expansions by 15%, new fixtures or furniture purchases by 12%, and land or building acquisitions by 5%.

Sales trends showed a net negative reading for nominal sales growth over three months and inventory gains remained negative overall. A net negative perception of inventory sufficiency improved marginally from June.

Price increases are expected to continue: a net seasonally adjusted 28% plan price hikes even though fewer reported raising prices last month compared with June.

Profitability remained challenged; among those with declining profits, weaker sales and higher material or labor costs were frequently cited reasons.

Access to financing did not worsen notably: only four percent saw interest rates or loan access as major issues and regular borrowing dropped slightly.

Taxation was named as the second-most important problem (17%), while government regulation concerns slipped further down the list at eight percent.

NFIB’s survey has tracked small business economic trends since the early seventies using randomly selected members each month; July’s results reflect responses collected during that period.