U.S. small business optimism hits an 11-month high. What does this mean for the job market?

Small business sentiment in the U.S. rose in July to an 11-month high—the highest level since August 2025, according to the National Federation of Independent Business. Its U.S. Small Business Optimism Index rose 2.4 points last month to 99.8 points. The index also exceeded its 52-year average of 98 points, the federation noted. Meanwhile, economists surveyed by The Wall Street Journal had expected the figure to be 97.

Optimism has reached a nearly one-year high amid a sharp increase in the share of business owners planning to expand their workforce, Reuters notes. The employment index in the survey rose by 1.9 points after four months of continuous decline. The share of business owners planning to create new jobs over the next three months jumped by nearly half—to 20%—marking the highest level since October 2022.

These figures suggest that the July decline in nonfarm employment figures was most likely temporary, Reuters notes.

The uncertainty index rose by 2 points to 91: an increasing number of entrepreneurs doubt that now is the right time to expand their businesses or make major investments. Business leaders are also expressing doubts about their capital expenditure plans.

"Uncertainty remains high, most likely due to the situation surrounding the war with Iran," NFIB Chief Economist Bill Dunkelberg told the news agency. "A meaningful resolution would be a huge boon for the economy and small business owners."

The NFIB survey also showed that the quality and availability of labor became the top concern for small business owners in July: 27% of respondents cited this as their main challenge, which is significantly higher than the historical average of 12%. Labor shortages could become a problem for employers’ hiring plans, Reuters warned.

Reports citing inflation as the most pressing problem declined for the first time this year: only 14% of businesses cited it as a current challenge, down 7 percentage points from June.

On August 7, the U.S. Bureau of Labor Statistics reported an unexpected decline in nonfarm payrolls in July, with the figures for May and June being significantly revised downward. Some economists attributed the decline in employment to labor shortages.

The labor force has shrunk by more than one million people this year amid retirements and the Trump administration’s tough measures against illegal immigration. A further decline is highly likely, as hundreds of thousands of immigrants have lost their protected status, Reuters notes.

Investors reacted positively to the labor market data: for some, this signaled that the Federal Reserve is unlikely to raise interest rates anytime soon. However, the labor market is only one part of the central bank’s mandate; the other is inflation. If inflation turns out to be higher than expected, the likelihood of a rate hike will increase, warned Nationwide Chief Economist Cathie Bostjancic in her note.

On Wednesday, August 12, the U.S. will release data on consumer price inflation (the CPI).

This article was AI-translated and verified by a human editor