The NFIB small business optimism index is up 1.6 points to 91.0 in June after 89.4 in May. Though the index remains below its 49-year average of 98 for the 18th month in a row, the reading is above the consensus of 89.8 in the Econoday survey of forecasters.

At odds with the improvement in overall confidence is an increase in the uncertainty index, up 5 points at 76. The report said,"With owners' views about future sales growth and business conditions dismal, owners want to hire and make money from still positive consumer spending." Although the outlook for the future remains on the soft side and uncertain, the ongoing improvement hints that underlying conditions are cause for less pessimism.

Five index components are higher in June's report, four are lower, and one is unchanged. Concerns over sales growth aside, the largest upward contribution nevertheless is from expectations for the economy to improve which jumps 10 points to a still gloomy minus 40 percent. This is the highest reading since minus 35 percent in February 2022. The second largest upward contribution is a 7 point gain to minus 14 percent in expectations for higher real earnings.

The largest negative contribution is a 4 point decrease in plans to increase employment at 15 percent in June. Survey respondents reduced the number of job openings to 42 percent in June from 44 percent in May. Finding qualified applicants remains little changed since the start of the year despite some easing in labor market conditions. The subcomponent for qualified applicants is down 1 point to 54 percent and little changed since January. The subcomponent for planned compensation is unchanged at 22 percent in June from May, while actual compensation is down 5 points to 36 percent and the lowest since 34 percent in May 2021.

The small business optimism index has been below, and often deeply below, the historical average of 98 for 17 months in a row. June's consensus is 89.8 versus 89.4 in May.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.