The NFIB Small Business Optimism Index rose to 90.5 in May, up 0.8 points to its highest reading this year, but it marks the 29th consecutive month that it has remained below its historical average of 98. Additionally, the Uncertainty Index rose 9 points to 85, its highest level since November 2020. Inflation remains a major concern, with 22% of small business owners citing inflation as their main business challenge, unchanged from April and making it the top issue for business owners.
Economic significance
“The small business sector generates more than 40 percent of GDP and employment and is a critical part of the economy,” said NFIB Chief Economist Bill Dunkelberg. “But small business owners have expressed historically low optimism for 29 consecutive months, and their views on future business conditions are at their worst level in the last 50 years. With inflation not providing much relief on Main Street, small business owners need relief.”
The view from Arizona
“There's no doubt that the small business economy is struggling,” said NFIB State Director Chad Heinrich. “Small business owners are calling on Congress to permanently reduce taxes and eliminate the 'beneficial ownership' requirement. In this difficult and uncertain economic environment, we need lawmakers in Phoenix and Washington, D.C. to stand up for Main Street.”
Key findings
- Inventory levels: Owners who rated their current inventory as “too low” in May were down a net negative 8%, the lowest since October 1981.
- Hiring Plans: Hiring plans rose 3 percentage points to a net 15%, the highest reading this year.
- Price Increases: A 2 percentage point increase from April, a net 28% price increase is planned.
- Funding issues: 6% of business owners cited fundraising as their biggest business issue, the highest since June 2010.
According to the NFIB's monthly employment report, 18% plan to increase their compensation in the next three months, down three percentage points from April and the lowest since March 2021. Forty-two percent reported they have job openings they cannot fill.
Capital Expenditures and Sales
Fifty-eight percent of owners report making a capital expenditure in the past six months, up two percentage points from April. Of those, 40% invested in new equipment, 25% purchased a vehicle, and 16% improved or expanded their facilities. Looking ahead, 23% plan to make a capital expenditure in the next six months, up one percentage point from April.
Sales figures show a net decrease of 14% with owners reporting nominal sales increases over the past three months. Expectations of real sales growth have fallen to a net decrease of 13%.
Labor and profit concerns
Labor costs were cited as the top business issue by 10% of business owners, just three percentage points below its peak in December 2021. Labor quality was cited as the main issue by 20%, the second highest after inflation.
Profit trends remain a concern, with 30% of companies reporting a net profit decrease, down 3 percentage points from April. Of those reporting a profit decrease, 32% cited weak sales, 15% higher raw material costs, 14% higher labor costs, and 11% lower selling prices. Meanwhile, of those reporting an increase in profits, 41% cited sales volume, 23% seasonal fluctuations, and 10% higher selling prices.
The NFIB Research Center has been collecting data on small business economic trends since 1973 and conducting the survey monthly since 1986. The survey will be conducted through May 2024, with reports released on the second Tuesday of each month.