The NFIB Small Business Optimism Index saw its highest reading of the year in May, reaching 90.5, a 0.8-point increase from April. Despite this rise, it remains the 29th consecutive month below the historical average of 98. The Uncertainty Index jumped nine points to 85, the highest since November 2020. Inflation remains the top problem for small businesses, with 22% of owners identifying it as their most significant challenge, unchanged from April.
NFIB Chief Economist Bill Dunkelberg commented on the situation, stating, “The small business sector is responsible for the production of over 40% of GDP and employment, a crucial portion of the economy. 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% of owners viewed current inventory stocks as “too low” in May, the lowest reading since October 1981.
- Owners’ plans to hire rose three points to a net 15%, the highest reading of the year.
- 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, the highest since June 2010.
- A net 18% plan to raise compensation in the next three months, down three points from April, the lowest since March 2021.
- Forty-two percent of owners reported job openings they could not fill, seasonally adjusted.
In the last six months, 58% of owners reported capital outlays, a two-point increase from April. Of those, 40% spent on new equipment, 25% acquired vehicles, and 16% improved or expanded facilities. Eleven percent spent on new fixtures and furniture, and 6% acquired new buildings or land for expansion. Twenty-three percent plan capital outlays in the next six months, up one point from April.
Sales figures show a net negative 14% of owners reported higher nominal sales in the past three months. Expectations for higher real sales volumes fell one point to a net negative 13%. The net percent of owners reporting inventory gains fell one point to a net negative 7%.
The net percent of owners raising average selling prices remained unchanged from April at a net 25%. Price hikes were most frequent in the retail (55% higher), finance (50% higher), construction (42% higher), manufacturing (42% higher), and services (37% higher) sectors. Seasonally adjusted, a net 28% plan price hikes in May.
In terms of compensation, a net 37% reported raising compensation, down one point from April. A net 18% plan to raise compensation in the next three months, down three points from April. Ten percent cited labor costs as their top business problem, and 20% identified labor quality as their top issue, just behind inflation.
Profit trends remained negative, with a net negative 30% reporting lower profits, three points worse than April. Weaker sales, higher material costs, labor costs, and lower selling prices were the main reasons for lower profits. For those reporting higher profits, increased sales volumes, seasonal changes, and higher selling prices were credited.
Three percent of owners reported that all their borrowing needs were not satisfied, while 29% reported all credit needs met, and 58% were not interested in a loan. A net 6% said their last loan was harder to get than previous attempts.
The NFIB Research Center has been collecting Small Business Economic Trends data since the fourth quarter of 1973. This survey was conducted in May 2024.
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