In July 2025, small business owners across the United States reported a notable uptick in optimism, with sentiment reaching its highest level in five months. This increase, driven by improved views on the economic outlook, reflects a cautious but positive shift among entrepreneurs. However, challenges such as tariffs, inflation, and labor quality continue to weigh on their decisions. This article explores the factors behind this rise in confidence, the persistent concerns, and the broader economic context shaping the small business landscape.
A Rebound in Small Business Sentiment
The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index climbed 1.7 points to 100.3 in July 2025, surpassing the 52 year average of 98. This marks the highest level since February 2025, signaling a renewed sense of confidence among small business owners. According to Reuters, the increase was driven by a growing number of owners who view current business conditions favorably and see opportunities for expansion.
The NFIB survey, which captures the perspectives of small businesses across various sectors, highlighted that six of the index’s ten components improved, while two declined and two remained unchanged. Key factors contributing to the rise included better business conditions and a belief that now is a good time to grow operations. However, the survey also revealed growing uncertainty, with the NFIB’s Uncertainty Index jumping eight points to 97, reflecting concerns about future economic stability.
Key Drivers of Optimism
Several factors have contributed to the improved sentiment among small business owners:
- Policy Changes: The passage of the One Big Beautiful Bill Act in 2025, a significant tax reform, has boosted confidence, with nearly half of small business owners rating the economy as “excellent” or “good,” up from 30% in the previous quarter, according to a White House report.
- Consumer Spending: Robust consumer spending in the first half of 2025 has supported small business revenues, particularly in retail and services, as noted by BizWeekly.
- Access to Credit: Improved access to financing has eased some constraints, with programs like the SBA 504 loan helping businesses manage high interest rates, per AmPac Business Capital.
- Revenue Expectations: Over 50% of small business owners expect revenue growth in the next 12 months, a 10% increase from the prior quarter, according to CNBC’s Small Business Survey.
These positive developments have fostered a sense of cautious optimism, particularly among businesses benefiting from recent policy shifts and strong local economies.
Persistent Challenges for Small Businesses
Despite the uptick in optimism, small business owners face significant hurdles that temper their enthusiasm. The NFIB survey identified several key concerns:
- Labor Quality: 21% of owners cited labor quality as their top issue, a five point increase from June and the highest since February 2021. The Trump administration’s immigration policies, including deportations, have reduced the labor pool, exacerbating staffing challenges.
- Tariffs: President Trump’s protectionist trade policies, including a 50% tariff on Indian imports and duties on over 60 countries, have raised costs for businesses reliant on imported goods. One owner in the fabricated metal industry told Reuters, “Increased costs are affecting everyone. I believe things will improve, but it will take time six to 12 months.”
- Inflation: Although inflation has cooled from its 2022 peak, it remains above the Federal Reserve’s 2% target, with projections estimating a 3.0% Consumer Price Index rise for 2025. This continues to pressure small business margins.
- Economic Uncertainty: The NFIB’s Uncertainty Index spike to 97 reflects worries about tariffs, international conflicts like Gaza, and fluctuating commodity prices, such as low corn and soybean prices impacting agricultural businesses.
These challenges have led to cautious decision making, with many owners holding off on hiring, pricing adjustments, or investments in equipment and facilities.
Economic Context in July 2025
The broader U.S. economy in July 2025 presents a mixed picture. The U.S. Census Bureau’s Business Trends and Outlook Survey, released on July 31, 2025, indicated stable but cautious business expectations, with data showing a modest rebound in GDP growth projected at 1.5% to 2.6% for Q2 2025. However, consumer spending growth slowed to 0.5% in Q1, the weakest since 2020, and imports surged ahead of anticipated tariffs.
The labor market remains steady, with the unemployment rate at 4.1% in June, according to the Bureau of Labor Statistics. Yet, small businesses reported difficulties filling job openings, with 36% noting unfilled positions and 86% of those hiring facing a lack of qualified applicants. This labor scarcity, combined with rising costs, has strained operations, particularly in sectors like agriculture and manufacturing.
Sector Specific Impacts
Different industries reported varied experiences in July 2025:
- Retail and Services: These sectors benefited from strong consumer spending, with 56% of owners expecting revenue increases over the next year.
- Manufacturing: Tariffs have hit manufacturers hard, with higher input costs leading to reduced profitability. One metal fabrication owner noted the need to “hold on” for six to 12 months.
- Agriculture: Low commodity prices, such as for corn and soybeans, have squeezed margins, with one owner reporting minimal forward contracting due to unprofitable prices.
- Technology: Some businesses are leveraging artificial intelligence, with 37% reporting its use and 75% citing a positive impact, according to the U.S. Chamber of Commerce.
These sector specific trends highlight the uneven impact of economic conditions on small businesses.
Policy Impacts and the One Big Beautiful Bill
The One Big Beautiful Bill Act, enacted in 2025, has been a significant driver of optimism. The legislation, which includes tax cuts and regulatory relief, has led to a sharp decline in concerns about government regulations and trade policies, per CNBC’s Small Business Survey. Small business owners across political affiliations, including Democrats, reported improved sentiment, with 46% rating the economy positively, a 16-point jump from the previous quarter.
However, the bill’s benefits are tempered by tariff-related challenges. The U.S. Chamber of Commerce noted that 73% of small business owners are concerned about tariffs, with 53% reporting negative impacts on operations. The administration’s focus on repatriating manufacturing and reducing foreign competition is seen as a long term boon, but short term cost increases pose risks.
Looking Ahead: 2025 and Beyond
Economic forecasts for the remainder of 2025 suggest cautious growth. Fannie Mae projects real GDP growth of 1.3% for 2025, down from 1.4% in prior forecasts, with inflation expected at 3.0%. Small business owners are optimistic about 2026, with 39% expecting better economic conditions in six months, though 33% anticipate a decline, according to the Small Business & Entrepreneurship Council.
The repatriation of manufacturing, supported by automation and AI, could provide opportunities for small businesses, particularly in creating spin-off enterprises, as noted by Gord Collins. However, high interest rates and a strong U.S. dollar may continue to limit export markets, adding pressure to domestic-focused businesses.
Strategies for Small Businesses
To navigate the current environment, small business owners are adopting several strategies:
- Leveraging Technology: Increased use of AI to streamline operations, with 37% planning to invest more in the next year.
- Accessing Financing: Utilizing SBA loans to manage high interest rates and refinance debt, providing stability for expansion.
- Monitoring Local Demand: Focusing on local markets to offset tariff-related cost increases and global uncertainties.
- Advocacy: Engaging with organizations like the U.S. Chamber of Commerce to seek tariff relief and policy support.
These approaches aim to balance short term challenges with long term growth opportunities.
Conclusion
In July 2025, U.S. small business sentiment reached a five month high, with the NFIB’s Small Business Optimism Index rising to 100.3, driven by improved views on business conditions and expansion opportunities. Factors like the One Big Beautiful Bill Act and robust consumer spending fueled this optimism, but concerns about tariffs, labor quality, and inflation persist. The NFIB’s Uncertainty Index rose to 97, reflecting caution about hiring and investment. While sectors like retail show promise, manufacturing and agriculture face challenges. Economic forecasts predict modest growth for 2025, with small businesses adopting strategies like AI and financing to navigate uncertainties.
Sources & References: Reuters, CNBC, U.S. Chamber of Commerce, AmPac Business Capital, Fannie Mae, Gord Collins, BizWeekly
