Small businesses are often viewed as a bellwether for the economy. Monthly readings of small business sentiment give us clues into how they view economic conditions and changes they are making, including expanding and hiring.

New data indicate that small businesses are more optimistic about the economy and less concerned about inflation than taxes or hiring.

The NFIB Small Business Optimism Index rose 1.7 points in July to 100.3, beating expectations and driven by better business conditions. 

Small businesses cast a wide footprint. The U.S. is home to 35 million small businesses (fewer than 500 employees), about a third of which are owned by women. Small businesses comprise 99.9% of all companies in America, employ 45.9% of private sector employees (59.0 million workers), and generate 43.5% of gross domestic product.

Here are 3 takeaways about the economy from the July small business optimism report:

  1. Small businesses are healthier. Two out of three small business owners rated the overall health of their business as excellent (13%) or good (52%), both rising significantly from the previous month. This underscores the robust 3% growth the economy notched in Q2. Tariffs are not slowing down the economy as predicted. Small businesses see more upside than downside.
  2. Inflation is not a top concern. The top concern for a majority of small business owners is the challenge of hiring qualified employees. Among owners who were hiring or trying to hire new staff, a whopping 84% reported few or no qualified applicants for their unfilled positions. Employers hire when they expect business conditions to improve and to meet current or future demand for their goods and services. If the biggest challenge small business owners face is finding employees rather than finding work, they are in a good position. Furthermore, inflation driven by tariffs is not a big concern for employers.
  3. Tax concerns are easing, likely thanks to the One Big Beautiful Bill Act (OBBBA). Concern over taxes fell two points from June. The OBBBA, which was passed and signed into law on July 4, 2025, delivered permanent tax savings to small businesses, such as the 20% small business deduction and full expensing for big purchases. Beyond specific provisions, businesses now have certainty that on January 1, 2026, taxes will not rise, and they can plan for the future, thanks to President Trump and conservatives in Congress prioritizing this historic tax cut. To learn more about the One Big, Beautiful Bill, click here.

Top concerns for small businesses:

  1. 21% labor quality, up 5 points
  2. 17% taxes, down two points from June
  3. 11% inflation/poor sales
  4. 9% labor costs, down 1 point
  5. 8% regulations 

Bottom Line

Small businesses have more certainty about taxes thanks to the One Big, Beautiful Bill and are less worried about tariffs. With sales up, they can focus on growing their workforces. This is where their concern is greatest: finding qualified workers to fill open jobs.

The OBBBA reformed Medicaid to nudge able-bodied, childless workers to pursue education and skills or seek work, which will also expand the labor force to the benefit of small businesses, even if down the road.

As small businesses continue to strengthen, they will boost the overall economy.