U.S. small-business confidence surged to its highest level in nearly two and a half years in July, signaling that fears of a looming recession may have been overstated. According to the National Federation of Independent Business (NFIB), its Small Business Optimism Index rose by 2.2 points to 93.7, marking the highest reading since February 2022.

While inflation remains a concern for many business owners, there was a notable decrease in the number of businesses reporting increases in worker compensation and average selling prices. This development is seen as a positive sign for the inflation outlook. Additionally, more businesses plan to increase their inventory in the coming months, which could provide a boost to gross domestic product.

This report follows a survey from the Institute for Supply Management, which also showed positive signs, with a rebound in its nonmanufacturing PMI. Together, these indicators are helping to alleviate concerns that the U.S. economy is either in or on the brink of a recession, despite the recent rise in the unemployment rate to a near three-year high of 4.3% in July.

Inflation remains a key issue, with 25% of small-business owners citing it as their most significant problem, up from 21% in June. This, coupled with uncertainty ahead of the upcoming presidential election in November, has kept the NFIB index below its 50-year average of 98 for the 31st consecutive month.

“Owners are heading towards unpredictable months ahead, not knowing how future economic conditions or government policies will impact them,” said NFIB chief economist Bill Dunkelberg.

Despite these challenges, the overall inflation picture is showing signs of improvement. Fewer business owners reported raising employee compensation, with the net percentage dropping to 33%, the lowest since April 2021. Similarly, the share of owners increasing average selling prices fell to 22%, indicating easing price pressures.

Looking ahead, only 24% of owners plan to hike prices, the smallest share since April 2023, suggesting that inflation may continue to cool. This cooling inflation, along with a moderating labor market, has led many economists to anticipate that the Federal Reserve could begin cutting interest rates as early as September.

While the labor market is slowing, worker shortages remain a significant challenge, particularly in industries like construction, transportation, and retail. The NFIB reported that job openings in construction rose by 4 points from June, with 55% of firms unable to fill vacancies. Overall, 38% of all small-business owners reported unfilled job openings in July, a slight increase from the previous month.

These mixed signals indicate that while inflationary pressures may be easing, small-business owners are still navigating a complex economic landscape with ongoing challenges in the labor market and concerns about future economic conditions.

(Adapted from AOL.com)