NFIB Shows Stubborn Price Pressures Amid Improving Activity Outlook

The NFIB Optimism Index rose 0.9 points to 91.9 in July, representing a bigger improvement than the 91.3 expected and the highest readings since Nov 2022. As usual though the subcomponents were more interesting and suggested that the outlook for small business activity was stable-to-improved, while inflation pressures were abating slightly but at a still-high level.

• Of the index's 10 components, 5 saw improvement (employment, capital outlays, inventory plans, economic expectations, real sales expectations), 1 fell (earnings), and 4 were unchanged (current inventories, job openings, expected credit conditions, "good time to expand").
• A net 21% plan to raise compensation in the next 3 months (-1pp), while 10% cited labor costs as their biggest problem (up 2 points).
• A net -13% reported higehr nominal sales the past 3 months, lowest since Aug 2020, though the net % expecting higher real sales volumes was up 2 points to -12%.
• From an inflation perspective, the the net % of businesses reporting higher selling prices fell 4 points to net 25%, lowest since Jan 2021 (on a seas adj basis), with 21% saying inflation was their biggest problem, a 3 point drop. So there is some progress here but overall stabilization of net price expectations (a net 27% plan price hikes, albeit down 4 points) continues to suggest some difficulty in getting CPI back toward the Fed's 2% target (see chart).
• Credit availability didn't seem to be a problem despite this year's high profile bank turmoil, with most related indicators basically unchanged vs June (only 3% said their borrowing needs were not satisfied, with 6% reporting their last loan was harder to get than in previous attempts).