Small Business Optimism Index Declines in California

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The NFIB Small Business Optimism Index for California in June 2025 saw a minor decline, settling at 98.6. Despite this, recent legislative changes, such as the permanent Small Business Tax Deduction and easing CEQA restrictions, have generated optimism among business owners. Overcoming challenges like rising labor costs and inventory concerns, small businesses continue to show resilience in a fluctuating economic landscape.

California — The NFIB Small Business Optimism Index for June 2025 registered a slight decline of 0.2 points, landing at 98.6, which is marginally above the 51-year average of 98. Despite this minor drop, recent legislative measures aimed at supporting small businesses have provided a measure of optimism for California’s business owners.

On July 4, California small business owners celebrated the permanent establishment of the Small Business Tax Deduction, a development designed to ease financial burdens. Additionally, legislative changes easing restrictions under the California Environmental Quality Act (CEQA) were enacted, significantly aiding the homebuilding sector. These initiatives underscore the government’s commitment to fostering a conducive environment for small businesses in the state.

The NFIB’s Small Business Optimism Index is a vital tool for understanding the pulse of the small business economy across the United States. It is based on responses from NFIB-member small business owners, typically employing between 1 to 9 individuals, with average annual sales around $500,000. The index serves as a reference point for policymakers and economic leaders alike.

In June, NFIB Chief Economist Bill Dunkelberg indicated that small business optimism remained relatively steady, with a notable decrease in uncertainty among owners. However, the survey revealed that taxes continue to be a pressing concern, highlighted by 19% of respondents citing it as their primary challenge—an increase of one percentage point from May. Furthermore, a significant rise in business owners reporting excess inventories contributed to the overall decrease in the optimism index.

The hiring landscape demonstrated ongoing challenges, with 36% of small business owners indicating they had job openings that could not be filled. Among those attempting to hire, 86% reported difficulties in finding qualified applicants. Labor costs emerged as a significant issue for business owners, reaching 10%, the highest concern. In a positive sign for the workforce, however, a seasonally adjusted net 33% of owners indicated they had raised compensation—the most substantial increase since January 2020.

The survey also highlighted that the percentage of business owners reporting poor sales as their top problem rose to 10%, following several months of stability. This coincided with a net of 32% of owners planning to increase prices, the highest level since March of the previous year, reflecting a cautious approach to market fluctuations. A small net negative percentage of owners, specifically 5%, viewed their current inventory stocks as “too low,” a factor that significantly contributed to the optimism index’s drop.

Furthermore, a troubling trend in the labor market persisted, with a quarter of owners reporting a shortage of qualified applicants. Despite these hurdles, loan availability for small businesses remained favorable, with 26% of owners engaged in regular borrowing practices.

While the index of uncertainty regarding future economic conditions stays elevated, the recent legislative improvements provide a silver lining for California’s small business community. The combination of legislative support and the resilience of small businesses may pave the way for greater stability and growth in the coming months, even as challenges and uncertainties remain. As California’s lawmakers continue to prioritize small business needs, the potential for future optimism seems brighter on the horizon.

California Small Business Optimism Index Slightly Declines

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Author: HERE LOS ANGELES