B of A Says Tariff Turbulence Dampens Main Street Optimism
June 30, 2025
Bob Coleman
Founder & Publisher
Main Street Monday: B of A Says Tariff Turbulence Dampens Main Street Optimism
Says Bank of America’s Small Business Institute Economist Taylor Bowley:
For the first time in 2025, small business optimism has seen an uptick, yet uncertainty continues to loom, according to the NFIB. The NFIB Small Business Optimism Index rose by three points in May to 98.8, slightly above the 51-year average of 98. This increase was primarily driven by improved expectations for business conditions and sales. However, the Uncertainty Index also climbed two points to 94, indicating that while optimism is growing, so are concerns about the future.
A significant factor contributing to this uncertainty is the current tax environment. Taxes have become the top concern for 18% of small business owners, marking the first time since 2020 that taxes have topped the list of concerns. This shift is largely attributed to the ongoing debates in Congress over President Trump’s proposed “Big Beautiful Bill,” which aims to extend tax cuts from 2017 but faces opposition due to potential increases in the national deficit.
Tariffs are another area of concern. Although most small businesses do not make direct tariff payments, those that do have experienced a 91% increase in such payments in May compared to the 2022 average. This increase is particularly impactful for small businesses, which often operate on thinner profit margins than larger corporations.
Despite these challenges, there are positive signs. The net percentage of owners expecting higher real sales volumes rose 11 points from April to a net 10% in May, contributing significantly to the rise in the Optimism Index. Additionally, 22% of small business owners plan capital outlays in the next six months, the highest reading of the year.
Sector-specific impacts are also evident. Industries disproportionately affected by tariffs, such as wholesale and retail trade, have experienced fluctuating profitability throughout the first half of the year. This volatility underscores the sector-level uncertainty surrounding the impact of tariffs on prices and demand.
In summary, while small business optimism is on the rise, it is tempered by growing uncertainties related to taxes and tariffs. Business owners are cautiously optimistic, balancing positive sales expectations with concerns about policy changes and economic pressures.
