Index Reaches Post-Pandemic High As More See Improving Economy

Small businesses are clearly more positive about the economy and their overall business health this quarter. Currently, one-third (33%) of small businesses say the U.S. economy is in good health, a nine-percentage point increase from last quarter. A similar number (38%) feel the same about their local economy (up eight percentage points from Q2). Small businesses also are feeling better about their business health and cash flow : Two in three (66%) small businesses report that their business is in good health and roughly seven in ten (72%) say they are comfortable with their cash flow. Both measures jumped several points from last quarter.

In addition to increasing optimism about the local and the national economies, small businesses remain optimistic about future revenue and many have plans to increase investment and hiring. 71% say they expect next year’s revenue to increase, the highest levels recorded since the start of this survey (Q2 2017). In addition, 42% of small businesses say they plan to increase investment in the next year and two in five (40%) small businesses say they anticipate increasing staff in the next year.

At the same time, the survey (conducted between July 20 – August 8, 2023) shows inflation and rising interest rates are persistent concerns for small businesses, and they are making themselves felt in different ways. A majority (52%) of small businesses continue to report that inflation is their biggest challenge, a consistent pattern over the past year. This quarter there was also notable concern about growing wage expectations: A majority (56%) of small businesses say keeping up with employee salary expectations is a challenge. At the same time, slightly fewer small businesses say that rising interest rates are limiting their ability to raise capital or financing for their business (70% in Q3 vs. 76% in Q2 2023).

Small businesses are also actively addressing employee mental health and well-being as priorities and that sentiment has risen compared to two years ago. In fact, 68% now say they utilize at least one resource to assist with employee mental health and well-being. Many small businesses also report leaning into their small, tight-knit family culture to retain employees—perhaps making them stand out as they compete to retain employees and attract new recruits.