U.S. small-business confidence slipped in June, as firms overall felt they had too much inventory on hand amid ongoing trade tensions and declining optimism over the outlook for sales.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index fell two tenths of a point last month to 98.6.

A substantial increase in respondents reporting excess inventories contributed the most to the decline, the NFIB said, with nearly one in eight businesses reporting inventories were "too high" in June, almost double that in May.

At the same time, the survey showed a drop in the share of those expecting improved sales in the next three months, to a net 7% from 10% in May.

Respondents also reported a substantial decline in how they see the health of their own businesses, with 49% reporting "good" and 8% reporting "excellent," down from 55% and 14%, respectively, in May. Those reporting fair or poor business health increased.

The survey's uncertainty index meanwhile fell 5 points to 89, still high by historical standards but the lowest reading this year.

President Donald Trump's trade and other policy priorities have been key drivers of uncertainty. This week, the level of tariffs that U.S. trading partners will face came into sharper focus, as Trump told Japan and South Korea their goods would be subject to a 25% tariff starting Aug. 1 in what was expected to be the first of several other tariff announcements in coming days.

Last week Trump signed his sprawling domestic policy bill into law. He and his Republican allies say the "big beautiful bill" will boost economic growth. Democrats note that it will knock millions off of health insurance, and a non-partisan analysis found that it will add $3 trillion to the nation's debt.

"Democrats are depressed, Republicans jubilant," the NFIB report said, noting a partisan divide in sentiment that's evident in other confidence surveys as well.

"Just how this will shape their spending is less clear. As uncertainty is resolved, the outlook will become clearer."

The proportion of respondents expecting better business conditions slipped to a net 22%, from 25% in May, but still higher than the historical average of 3%, according to the report.

Some 19% of small business owners said taxes were their most important problem, making it the top concern overall; just 3% ranked finances and interest rates as their top problem, putting it at the bottom of their concerns. Some 11% ranked inflation as their top issue, down 3 points from May and the lowest reading since September 2021 as price pressures continued to ease.

The report does not list "tariffs" or "trade" as options on its "single-most-important-problem" list.

The survey was consistent with a slowing labor market, with the share of owners reporting labor quality as the single most important problem for their business staying near the levels seen in the spring of 2020 at the onset of the COVID-19 pandemic.

The share raising compensation increased to 33%, up 7 points from May, even as the net percent planning an increase in the next three months slipped to 19% from 20% in May.