Small business sentiment in the United States improved notably in July, according to the latest report from Wells Fargo Economics, with the NFIB (National Federation of Independent Business) Small Business Optimism Index reaching its highest reading since February. The rebound was fueled by brighter expectations for the economy and a stronger expansion outlook. However, elevated uncertainty—driven in part by upcoming trade policy changes—continues to weigh on capital investment plans and hiring activity. The July reading marked a sharp contrast to the more cautious tone seen earlier in the year. The share of small firms expecting the economy to improve over the next six months surged by 14 percentage points, while the net percent of businesses with a positive expansion outlook rose five points to 16 percent, the best result since January. Economists note that optimism may have been bolstered by the recent passage of the One Big Beautiful Bill Act (OBBBA) on July 4, which small business owners view as potentially supportive for growth.
Yet this growing optimism has been tempered by rising uncertainty. The NFIB Uncertainty Index jumped eight points in July, reflecting heightened caution ahead of the August 1 tariff deadline. The Wells Fargo report emphasizes that policy volatility—particularly in trade and immigration—is disrupting planning for many firms, with uncertainty now sitting well above pre-pandemic levels. The combination of improved sentiment and higher uncertainty is shaping small business investment patterns. Although more firms reported actual capital expenditures in July, only 22 percent plan to invest in the months ahead, a figure that remains well below both pre-pandemic and immediate post-pandemic averages. Economists warn that sustained uncertainty could further suppress investment activity, even in the face of improving economic expectations.
Meanwhile, labor market dynamics are also shifting. While hiring plans have modestly improved this year, the share of small firms reporting unfilled job openings fell to its lowest level since December 2020. This suggests a gradual cooling in labor demand. However, supply constraints remain a challenge in certain sectors—most notably construction, where 55 percent of firms reported unfilled positions in July. The report highlights that immigration-related policy changes have disproportionately affected industries with a high reliance on foreign-born workers. Based on the report, inflationary pressures appear contained for now. Despite looming tariff changes, small business pricing activity eased in July, with the share of firms reporting price increases falling five points to its second-lowest reading of the year. Plans to raise prices also softened, slipping four points. Wells Fargo economists note that this aligns with the broader cooling in compensation pressures. The share of firms raising wages dropped to its second-lowest level since February 2021, and wage growth plans remain subdued.
Overall, the July NFIB report paints a picture of cautious optimism among small business owners. While expectations for the economy have improved, uncertainty—driven by policy shifts and trade developments—continues to cloud the outlook. If tariff-related disruptions are limited and labor supply challenges ease, optimism could translate into stronger hiring and investment in the months ahead. Conversely, sustained policy volatility could keep businesses on the sidelines, slowing momentum in what has otherwise been a resilient small business sector.
