The mood among American small business owners took a step back in June, as the latest data from the National Federation of Independent Business (NFIB) shows a dip in optimism. The NFIB Small Business Optimism Index, a closely watched measure of sentiment, edged down to 98.6 from 98.8 in May. While this reading is still a touch above the 51-year average of 98, the decline is drawing attention for what it reveals about the challenges facing Main Street right now.
The main culprit this month is excess inventory. Nearly one in eight small businesses reported having “too high” inventory levels in June, almost double the share from the previous month. This jump in surplus goods is weighing on confidence, as owners worry about their ability to clear shelves and maintain healthy cash flow. It’s a notable shift, considering that inventory shortages were a common headache not long ago.
Trade tensions are also casting a shadow. Recent policy announcements, including new tariffs targeting imports from Japan and South Korea, have added to the uncertainty. Small business owners are watching these developments closely, knowing that higher costs or supply disruptions could hit their bottom line. The survey’s Uncertainty Index, which tracks how unsure owners feel about the future, did fall by five points to 89 in June. While that’s the lowest reading this year, it still reflects a climate of caution.
Perhaps most telling is the shift in expectations for future sales. The share of owners anticipating better sales in the coming months fell by three points, and only 7% now expect higher real sales volumes. This is a clear signal that many small business operators are bracing for a period of sluggish demand. The percentage of owners expecting improved business conditions also dropped, landing at 22%.
Owners’ perceptions of their own business health have also cooled. In June, 49% described their business as “good” and just 8% as “excellent.” Both figures are down from May, when 55% said “good” and 14% said “excellent.” Meanwhile, more respondents rated their situation as “fair” or “poor,” underscoring a sense that the environment is getting tougher.
Taxes remain the most frequently cited problem, with 19% of owners naming them as their top concern. This is the highest level seen since July 2021. Labor quality and labor costs are also high on the list, with many businesses still struggling to find and afford the workers they need. Inflation, which dominated headlines in recent years, has slipped to third place among worries, but it’s far from forgotten.
The inventory story is especially striking. A net negative 5% of owners (seasonally adjusted) viewed their inventory as “too low” in June, down six points from May. At the same time, the share reporting “too high” inventories jumped to 12%, up from 7% the previous month. This swing suggests that supply chains have normalized for many, but demand hasn’t kept pace with expectations, leaving businesses with more stock than they’d like.
Despite the modest decline in optimism, the overall index remains close to its long-term average. That suggests resilience, but also a lack of strong momentum. With trade policy in flux and consumer demand uncertain, small business owners are likely to remain cautious in the months ahead.
For investors and policymakers, the message is clear: Main Street is managing, but not thriving. The focus now will be on whether inventory levels can be brought back in line and whether the broader economy can deliver the growth that small businesses are hoping for.
