The NFIB Small Business Optimism Index reached its highest reading of the year in May at 90.5, marking a 0.8-point increase. However, this still represents the 29th consecutive month below the historical average of 98. Concurrently, the Uncertainty Index rose nine points to 85, the highest level since November 2020. Twenty-two percent of business owners reported that inflation was their most significant operational problem, unchanged from April.
“The small business sector is responsible for the production of over 40% of GDP and employment, a crucial portion of the economy,” said NFIB Chief Economist Bill Dunkelberg. “But for 29 consecutive months, small business owners have expressed historically low optimism and their views about future business conditions are at the worst levels seen in 50 years. Small business owners need relief as inflation has not eased much on Main Street.”
Key findings from the report include:
- A net negative 8% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in May, down four points from April and the lowest reading since October 1981.
- Owners’ plans to hire rose three points in May to a seasonally adjusted net 15%, the highest reading of the year.
- Seasonally adjusted, a net 28% plan price hikes in May, up two points from April.
- Six percent of owners reported that financing was their top business problem in May, up two points from April—the highest level since June 2010.
According to NFIB’s monthly jobs report, a seasonally adjusted net 18% plan to raise compensation in the next three months, down three points from April and marking the lowest reading since March 2021. Forty-two percent (seasonally adjusted) of all owners reported job openings they could not fill during this period.
Fifty-eight percent of owners reported capital outlays in the last six months, up two points from April. Of those making expenditures:
- 40% spent on new equipment,
- 25% acquired vehicles,
- 16% improved or expanded facilities,
- Eleven percent invested in new fixtures and furniture,
- Six percent acquired new buildings or land for expansion.
Twenty-three percent (seasonally adjusted) plan capital outlays in the next six months, up one point from April.
A net negative 14% of all owners (seasonally adjusted) reported higher nominal sales over the past three months. The net percentage expecting higher real sales volumes fell one point to a net negative 13% (seasonally adjusted).
The net percentage reporting inventory gains fell one point to a net negative seven percent. Not seasonally adjusted:
- Eleven percent reported increases in stocks,
- Fifteen percent reported reductions.
A net negative eight percent (seasonally adjusted) viewed current inventory stocks as “too low” in May—the lowest reading since October 1981. A net negative six percent (seasonally adjusted) plan inventory investment in coming months remained unchanged from April.
The percentage raising average selling prices was unchanged from April at a net twenty-five percent seasonally adjusted:
- Twenty-two percent cited inflation as their primary issue,
- Twelve percent unadjusted reported lower average selling prices,
- Forty-percent unadjusted reported higher average prices.
Price hikes were most frequent among sectors including retail (55%), finance (50%), construction (42%), manufacturing (42%), and services (37%). Seasonally adjusted, a net twenty-eight percent planned price hikes for May.
Seasonally adjusted:
- Thirty-seven percent raised compensation—down one point from April,
- Eighteen-percent plan to raise compensation within three months—down three points and lowest since March 2021.
Ten-percent cited labor costs as their top problem—three points below December's peak of thirteen-percent.
Twenty-percent cited labor quality just behind inflation as top issues.
Profit trends showed:
- Net negative thirty-percent frequency reports—three points worse than April.
Among those reporting lower profits:
- Thirty-two-percent blamed weaker sales,
- Fifteen-percent cited rising material costs,
- Fourteen-percent mentioned labor costs,
- Eleven-percent pointed to lower selling prices.
Among those reporting higher profits:
- Forty-one-percent credited sales volumes,
- Twenty-three-percent attributed usual seasonal change,
- Ten-percent cited higher selling prices.
Three-percent stated all borrowing needs unmet; twenty-nine percent met all credit needs; fifty-eight were uninterested in loans; six-percent found last loan harder than previous attempts.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since Q4/1973 and monthly surveys since1986. Survey respondents are randomly drawn from NFIB’s membership with reports released every second Tuesday monthly; this survey conducted May/2024.