Small Business Checkpoint: A summer rebound
The desk views the small business sector's revival as a crucial indicator of overall economic health, with rising hiring and profitability enhancing the outlook for consumer spending. Per the full note from Bank of America, the alternative hiring indicator rose by 21% year-over-year in July, and hiring plans reached their highest since 2022. This uptick may support a stronger dollar as robust economic fundamentals often drive demand for USD. Recent sentiment, coupled with firm hiring intentions, may set the stage for upward momentum in the coming months.
What the desk is arguing
The desk frames the resurgence of small businesses as a significant positive economic signal, enhancing the case for a stronger dollar in the near term. Per the full note from Bank of America, small business hiring surged 21% year-over-year as of July, and hiring plans reflected optimism not seen since 2022.
This strength in small businesses fuels expectations for greater consumer spending, reinforcing economic momentum and potentially increasing inflationary pressures. Such dynamics could prompt a more aggressive stance from the Federal Reserve, making the USD more attractive to investors.
Where it sits in our coverage
Our current consensus target for USD is 1.075, with expectations ranging between 1.04 and 1.12. Notable firm forecasts include:
Given the broader market outlook, the desk's perspective aligns with the higher range of forecasts, reflecting a bullish sentiment towards the USD based on small business performance.
How other firms see it
Firms like jpmorgan are aligned with this optimistic interpretation, suggesting that a favorable economic data stream could bolster the dollar's strength. In contrast, bofa holds a more cautious view, indicating uncertainty in sustaining small business momentum in the long term.
Indicators like the upcoming Fed meetings and inflationary trends will be crucial to watch, especially as they impact USD pairs such as EUR/USD, which may mirror shifts in the Fed's rate outlook.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Small businesses showed a 21% year-over-year increase in hiring in July, indicating strong economic momentum.
- 02Optimistic hiring plans reached the highest levels since 2022, supporting greater consumer spending expectations.
- 03The desk suggests that this revival could lead to an upward correction in USD as the Fed potentially shifts its stance on interest rates.
Market implications
Watch for any market reaction tied to small business performance data, particularly as it influences USD pairs like EUR/USD. Pay attention to shifts in market sentiment, especially ahead of potential Fed discussions on monetary policy adjustments.
Risks to this view
Key risks include a slowdown in small business hiring or unexpected downturns in consumer sentiment. Any shifts in inflation rates deviating from current expectations could also prompt a policy shift by the Fed, impacting the dollar's trajectory.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ Small Business Checkpoint: A summer rebound Small businesses have gained momentum, with hiring strengthening and profitability growth reaching its strongest level of 2026. Small business hiring has shown strength this summer. Our alternative hiring indicator was up 21% year-over-year in July, according to Bank of America small business payments data.
And hiring plans reported in the July National Federation of Independent Business survey reached their highest level since 2022. Click below to access our latest publication for a more in-depth look at these insights. You are receiving this email as a subscriber to Bank of America Institute analyses on the economy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Read the publications, available through the link(s) above, for complete information including important disclosures.
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