Small Business Survey Sends Mixed Inflation Signals

The June NFIB survey pointed to an improvement in small business optimism to the highest since November 2022 (the index rose 1.6 points to 91.0, above the 89.9 expected).

• The underlying improvement was more mixed than the headline number suggests. On the positive side, expectations of a better economy rose 10 points to net -40% (in June 2022 it was -61%), with expectations of higher real sales volumes improving 7 points to net -14%. Credit conditions have changed little this year despite the recent bank crisis, and the capital spending plans category printed a solid net 25% (joint highest since May 2022).
• But of course several of those are merely improvements from deeply negative levels, while other key categories were little changed (earnings trends -24%, inventory rebuild plans -3%). Hiring plans fell 4 points to 15%, and the Uncertainty Index was up 5 points to 76, joint-highest of the year.
• A standout headline from the survey was the 3 point drop in the net percent reporting raising average selling prices: at 29% that's the lowest since March 2021 and while still "a very inflationary level" per the NFIB, it's trending down. On the wage side, those reporting higher compensation fell 5 points from May to 36% on net.
• That said though, 22% plan to raise comp in the next 3 months (hasn't changed from that level all year), and plans to set higher prices increased, by 2 points to 31% - the highest since November 2022.
• The latter is a key forward-looking CPI metric and a smoothed leading series has already begun to round out higher, suggesting that inflationary pressures will persist well into next year above the Fed's 2% target (see chart).