Small business owners are planning their biggest hiring push in nearly four years even as the worker shortage reaches its most acute level since mid-2025.
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Small Business Hiring Plans Jump to 20% as Worker Shortage Worsens
Small business owners are planning their biggest hiring push in nearly four years even as the worker shortage reaches its most acute level since mid-2025.
The NFIB Small Business Employment Index rose 1.9 points to 102.1 in July, the first gain after four consecutive monthly declines, as a net 20 percent of owners plan to add jobs over the next three months — the highest since October 2022.
"Labor quality or availability as the top concern for Main Street rose in July, with employment growth falling behind the pace of economic growth," said Bill Dunkelberg, chief economist at the National Federation of Independent Business.
The index's rebound comes as 36 percent of owners reported unfilled job openings, up 4 points from June and the highest since June 2025. Skilled-worker openings rose 4 points to 31 percent, while unskilled positions climbed 2 points to 14 percent. Yet actual hiring slipped 1 point, with 61 percent of owners reporting they hired or tried to hire in July — and 85 percent of those found few or no qualified applicants.
The gap between hiring intentions and available labor threatens to constrain small-business growth at a time when the broader economy is expanding. With 27 percent of owners citing labor quality or availability as their single most important problem — 15 points above the historical average of 12 percent — wage pressures are building. A net 31 percent raised compensation in July, up 3 points from June, and 19 percent plan further increases over the next three months.
Hiring Intentions Outpace Reality
The divergence between planned and actual hiring is stark. While the net 20 percent planning to create jobs marks a 9-point jump from June and sits 9 points above the historical average, actual hiring activity declined 1 point. Michael Smith, NFIB state director, said unfilled positions create a ripple effect: "When positions go unfilled, that can cause a ripple effect of tough choices for small business owners, including cutting hours, reducing services, or raising prices to offset increased compensation costs."
The labor shortage is not isolated to small firms. U.S. factory activity expanded again in July, according to the Institute for Supply Management, adding to the picture of a rising economy. But Dunkelberg noted that "most of the primary spending driving the economy is heavily concentrated in big projects like new data centers for AI," leaving Main Street businesses competing for a stagnant labor pool. The labor force participation rate remains below pre-pandemic levels, and the NFIB's 27 percent reading on labor quality as the top problem is 15 points above the historical average.
Compensation Pressures Build
Wage inflation is emerging as a secondary concern. Both compensation measures rose in July: a net 31 percent of owners reported raising pay, up 3 points from June, while a net 19 percent plan increases in the next three months, up 2 points. Both readings sit above their historical averages, suggesting small businesses are paying up to attract scarce workers.
The compensation trend carries implications for the Federal Reserve's inflation fight. If small businesses pass higher labor costs through to prices — as Smith suggested — the disinflation progress of recent months could stall. The last time the NFIB employment index registered above 102 was in early 2025, when the Fed was still debating the pace of rate cuts. With the labor market showing resilience, policymakers may need to weigh wage-driven inflation against the risk of cooling economic growth.
For workers, the environment remains favorable. Small businesses, which employ roughly half of the U.S. private workforce, are willing to pay up for talent. The NFIB data suggests that for any American considering entering the labor force, the current conditions offer rare leverage. As The Wall Street Journal's Best of the Web column noted, "there is no time like the present" for those thinking of joining the workforce.
This article is for informational purposes only and does not constitute investment advice.
