Input Stories

The NFIB Small Business Optimism Index rose three points in May to 98.8, remaining above the 51-year average of 98. May’s increase stemmed from a rise in expected business conditions and sales expectations. Of the 10 components included in the index, seven increased, two decreased and one stayed the same. Meanwhile, the Uncertainty Index climbed two points to 94 and remains far above the 51-year average (68) and the average since 2016 (80).

Taxes were ranked as small businesses’ top concern, with 18% reporting them as their most important problem, up two points from April. Labor quality ranked second as the top concern for many small business owners in May, with 16% reporting it as the most important problem. In May, 34% of small business owners reported jobs they could not fill, the same as April. The last time job openings were below 34% was January 2021. The challenge of filling open positions remains acute, particularly in manufacturing, transportation and construction. Inflation now ranks third with 14% reporting it as a top concern, and the last time it was below 14% was in September 2021.

A net 26% of small business owners reported raising compensation, down seven percentage points from April and the lowest reading since February 2021. Profitability remained under pressure, with a net negative 26% reporting positive profit trends, which is five points worse than in April. Of those reporting lower profits, 36% claimed weaker sales, while 13% cited increased material costs. A net 31% of small business owners planned price hikes in May, up three percentage points from April. Despite the economy showing signs of slowing, demand remains too strong to trigger widespread price reductions. Meanwhile, 4% reported their last loan was harder to get than previous attempts, down one point from April, but a net 7% of owners reported paying a higher rate on their most recent loan, up one point from the prior month.

The outlook for general business conditions rose 10 points to 25%. In spite of the increase in outlook, the share of firms saying it is a good time to expand was low, when looking at the history of the survey, despite rising one point to 10% in May. Businesses are still stumbling through mounting uncertainties, including the rocky tariff outlook and the future of tax policy, as they wait for Congress to renew tax reform.

The Producer Price Index for final demand (also known as wholesale prices) increased 0.1% over the month in May, after declining 0.2% in April. Over the year, producer prices moved up 2.6%. Meanwhile, prices for final demand excluding foods, energy and trade services edged up 0.1% over the month in May, after falling 0.1% in April. On the other hand, prices for these goods advanced 2.7% from May 2024.

In May, prices for final demand services inched up 0.1%, following a 0.4% decline in April, while prices for final demand goods rose 0.2%. The advance in final demand services is attributed to 0.4% growth in trade services, which measures margins received by wholesalers and retailers. Additionally, margins for machinery and vehicle wholesaling jumped 2.9%. Meanwhile, 80% of the increase in final demand goods arose from a 0.2% gain in final demand for goods less foods and energy. Within the index, prices for tobacco products climbed 0.9%.

Processed goods for intermediate demand rose 0.1% in May, following a 0.3% increase in April. The rise can be attributed to a 0.4% gain in the index for processed materials less foods and energy. Meanwhile, the index for processed energy goods fell 1.2%. Over the year, the index grew 1.9%, the largest 12-month increase since the 2.1% rise in February 2023.

Meanwhile, prices for unprocessed goods for intermediate demand fell 1.6% in May, marking the third decline in a row. More than 75% of the May decrease can be traced to a 3.5% drop in the prices for unprocessed energy materials. Additionally, prices for unprocessed nonfood materials less energy slipped 1.4%. Over the year, prices for unprocessed goods for intermediate demand declined 1.0%, the first 12-month decrease since dropping 2.2% in November 2024.

Consumer prices increased 0.1% over the month and 2.4% over the year in May, edging up from the 2.3% rise in April. Core CPI, which excludes more volatile energy and food prices, edged up 0.1% over the month and rose 2.8% over the year, the same as the 12-month increase in March and April.

Energy costs fell 1.0% over the month in May, driven by a 2.6% drop in gasoline, and declined 3.5% over the year. Meanwhile, fuel oil and electricity both rose 0.9% over the month, and utility (piped) gas prices climbed 15.3% over the year.

Food prices increased 0.3% over the month in May, with prices for food at home and food away from home rising at the same rate, and were up 2.9% over the year in May. The indexes for major grocery store food groups were mixed, with half increasing and the other half decreasing. Over the year, the index for food at home advanced 2.2%, driven by a 6.1% increase in the meats, poultry, fish and eggs index.

Shelter grew 0.3% over the month and 3.9% over the year, dipping slightly from the 4.0% 12-month increase in April. Meanwhile, prices for transportation services slipped 0.2% over the month but rose 2.8% over the year, with airline fares leading the monthly decline, falling 2.7% in April and 7.3% since April 2024. These decreases offset increases in motor vehicle insurance, which rose 0.7% over the month and 7.0% over the year.

Since May 2024, the over-the-year headline inflation rate has trended downward, but the risks and expectations of higher inflation have risen. Therefore, markets are anticipating that the Federal Open Market Committee will keep rates steady, as it did in May, at its meeting later this week. On the other hand, the expectation to cut rates later in the year are rising as inflation risks remain muted and weakness in the labor market have increased slightly.

The previous administration’s significant regulatory changes issued under the Clean Air Act—in particular, its unworkable tightening of allowable soot levels—will create hardship for local economies and must be revised, the NAM told the House Energy and Commerce Subcommittee on Environment ahead of a hearing today.

• Manufacturers that fail to meet the National Ambient Air Quality Standards will be unable to obtain permits to either construct new facilities or expand existing facilities, the NAM pointed out.

What’s going on: In 2024, the Environmental Protection Agency lowered the primary annual standard for fine particulate matter (PM2.5, or soot) from 12 micrograms per cubic meter to 9 μg/m3 .

• “By lowering the standard to 9 μg/m3, which is essentially the same as the background levels that naturally occur in the environment across the nation, the Biden EPA was increasing the number of industrial centers and U.S. population hubs that would be placed into nonattainment status,” NAM Managing Vice President of Policy Charles Crain said.
• In the past 25 years, thanks to manufacturer-developed technologies, U.S. air quality has seen a 37% reduction in PM2.5, Crain continued, adding that an EPA analysis found that less than 20% of PM2.5 emissions come from industrial processes or stationary fuel consumption. Most of it is from sources well outside manufacturers’ control, such as wildfires and crop and livestock dust.

Why it’s important: Enacting the Biden-era tightened standards would mean severe economic losses for the U.S., the NAM told the subcommittee.

• An NAM-commissioned Oxford Economics study found that a standard just slightly stricter than the one set by the Biden administration—8 μg/m3—“would result in a loss of $162.4 billion to $197.4 billion in economic activity and put 852,100 to 973,900 jobs at risk, both directly from manufacturing and indirectly from supply chain spending.”

What they’re doing: In today’s hearing, the House Energy and Commerce Committee discussed two draft pieces of legislation, both supported by the NAM, that would reform the process for establishing NAAQS, which the Clean Air Act mandates the EPA set. The measures include:

• The Clean Air and Economic Advancement Reform (CLEAR) Act, which would make the NAAQS process more workable for manufacturers while “maintaining the regulatory guardrails that protect the health and welfare of our local communities,” according to the NAM; and
• The Clean Air and Building Infrastructure Improvement Act, which “seeks to inject clearer guidance into the process for obtaining preconstruction permits and meeting compliance requirements under a revised NAAQS.”

Our take: “Manufacturers strongly support the Energy and Commerce Committee’s efforts to address policy challenges with the NAAQS and to explore solutions that will pave the way for greater investment in the infrastructure that will allow America to compete in the 21st century,” Crain concluded.

The S&P Global U.S. Manufacturing PMI was 52.0 in May, the fifth consecutive month of growth and up from 50.2 in April. PMI growth was led by a rise in new orders and a dramatic increase in input inventories, which rose at a pace not seen in the indicator’s 18-year history even amid higher prices. Domestic demand was the primary driver to new order growth, along with efforts to frontload production ahead of greater tariff impacts. Additionally, optimism increased slightly after falling sharply in April, and employment advanced for the first time in three months. On the other hand, production declined for the third month in a row and at a slightly faster pace than in April.

Tariffs led to steep increases in both input and output costs, which rose at the highest rate since November 2022. Raw material prices remained elevated, despite dropping to a three-month low, amid reports of manufacturers passing on higher tariff-related costs. Additionally, tariffs continue to cause supply-side disruptions, as supplier delays have risen to the highest degree since October 2022 and are leading to growing vendor shortages. Small manufacturers and those in consumer-facing markets seem to be hit most severely by the impact of tariffs on prices and supply.

Nevertheless, manufacturers felt more optimistic that economic conditions will be more stable in a year’s time, particularly expecting tariff disruptions to dissipate in the months ahead. Therefore, confidence reached a three-month high to right above the survey average.

New orders for manufactured goods fell 3.7% in April following four consecutive monthly increases. When excluding transportation, new orders slipped 0.5%. Orders for durable goods dropped 6.3%, following a 7.6% increase in March. Year to date, durable goods orders are up 4.2%. Nondurable goods orders ticked down 0.9% in April after declining 0.7% in March. Nondurable goods orders are down 0.1% over the year.

New orders for nondefense aircraft and parts led the decrease in durable goods, falling 51.5%, after leaping 158.5% in March. In April, the largest monthly increase occurred in ships and boats, which rose 92.1%, after slipping 4.7% the month prior. The largest over-the-year changes also occurred in nondefense aircraft and parts (up 85.5%) and mining, oil field and gas field machinery (down 9.7%).

Factory shipments decreased 0.3% in April, after slipping 0.2% in March. Shipments over the year increased 0.9%. Shipments excluding transportation fell 0.6% in April, following a 0.3% decrease the previous month. Shipments for durable goods improved 0.3% in April, up from a 0.2% increase in March and up 1.8% year to date. Meanwhile, nondurable goods shipments declined 0.9% in April and are down 0.1% year to date.

Unfilled orders for all manufacturing industries stayed the same in April, following a 1.6% increase in March. Inventories edged down 0.1%, after rising 0.1% for the past four months, and the inventories-to-shipments ratio rose to 1.58 from 1.57. The unfilled orders-to-shipments ratio for durable goods decreased to 6.77 from 6.86 in March.

In May, global manufacturing activity contracted for the second consecutive month and at a slightly faster pace, falling from 49.8 to 49.6. For the first time in five months, output fell back into negative territory as a result of declining new orders and export business. Supply chains are stretched despite reduced purchase volumes, with vendor lead times lengthening and delivery times increasing to the greatest extent in six months. Nevertheless, the outlook strengthened, with business optimism rising from April’s two-and-a-half-year low.

India, Greece and Colombia had the highest PMI readings in May, while the Eurozone’s pace of contraction continued to improve for the third consecutive month. On the other hand, China, Japan and the U.K. were some of the larger nations to register declines in activity, and those contractions more than offset activity growth in the U.S. The overall downturn in manufacturing output reflected weakness in the intermediate and investment goods sectors. On the other hand, consumer goods production rose for the 22nd month in a row.

Additionally, manufacturing employment fell for the 10th consecutive month in May but at a slower pace than the prior month. Although staffing levels rose in the U.S., Japan and India, they sank notably in China, the Eurozone and the U.K. While remaining high, both input costs and selling price increases eased to the slowest pace in several months.

Job openings for manufacturing decreased by 16,000, from 397,000 in March to 381,000 in Furthermore, the March job openings level of 397,000 was revised downward dramatically from 449,000 in the previous report. Nondurable goods job openings in April stayed the same at 136,000, while durable goods job openings declined by 16,000, from 261,000 in March to 245,000 in April. The manufacturing job openings rate edged down to 2.9% from 3.0% in March and fell from 3.7% the previous year. The rate for nondurable goods manufacturing stayed the same at 2.7%, while it slipped 0.2% to 3.0% for durable goods.

In the larger economy, the number of job openings rose to 7.4 million, an increase of 191,000 from the previous month but a decrease of 228,000 from the previous year. The job openings rate ticked up to 4.4%, up from 4.3% in March but down from 4.6% last year. This data reflects an overall labor market that has eased back to pre-pandemic levels, but remains strong and tight from a historical perspective.

The number of hires in the overall economy increased 169,000 to 5.6 million in April but dropped 11,000 from the previous year. The hires rate for the overall economy inched up 0.1% in April to 3.5%. Meanwhile, the hires rate for manufacturing similarly ticked up 0.1% in April to 2.6%. The hires rate for durable goods rose 0.2% to 2.6% but edged down 0.1% to 2.6% for nondurable goods.

In the larger economy, total separations, which include quits, layoffs, discharges and other separations, rose 105,000 from March to 5.3 million and dropped 100,000 from the previous year. The total separations rate stayed the same at 3.3% for the overall economy but inched up 0.1% for manufacturing to 2.5%. Within that rate, layoffs and discharges increased by 14,000 in April for manufacturing, while quits increased by 2,000. The quit and layoff rates continue to remain lower for manufacturing than the total nonfarm sector.

Nonfarm payroll employment increased by 139,000 in May, slightly beating expectations. On the other hand, April’s job gain was revised downward dramatically by 30,000, from 177,000 to 147,000. The 12-month average stands at 149,000 job gains per month. The unemployment rate stayed the same at 4.2%, while the labor force participation rate edged down 0.2% to 62.4%.

Manufacturing employment slipped by 8,000, but the April loss of 1,000 was revised upward by 6,000 jobs to an increase of 5,000. Durable goods manufacturing employment fell by 7,000, while nondurable goods employment declined by 1,000. The most significant gain in manufacturing in May occurred in food manufacturing, which added 3,900 jobs over the month. Meanwhile, the most significant losses occurred in machinery manufacturing, which shed 7,300 jobs over the month, followed by paper manufacturing, which lost 1,500 jobs.

The employment-population ratio slipped 0.3% to 59.7% and is down 0.4 percentage points from a year ago. Employed persons who are part-time workers for economic reasons decreased by 66,000 to 4.60 million but are up from 4.42 million in May 2024. Native-born employment is down 444,000 over the month but up 1,337,000 over the year. Meanwhile, foreign-born employment is down 224,000 over the month but up 683,000 over the year.

Average hourly earnings for all private nonfarm payroll employees rose 0.4%, or 15 cents, reaching $36.24. Over the past year, earnings have grown 3.9%. The average workweek for all employees stayed the same at 34.3 hours but ticked up 0.1 hour for manufacturing employees to 40.1 hours.

In May, the U.S. manufacturing sector contracted for the third consecutive month and at a slightly faster pace than the prior month, with the ISM Manufacturing^® PMI decreasing to 48.5% from 48.7% in April. Customer demand and output slowed, while inputs started to weaken. The New Orders and Production Indexes continued to contract but at a slower pace, rising to 47.6% and 45.4%, respectively. Meanwhile, the New Export Orders and Imports Indexes contracted at a faster pace, plummeting to 40.1% and 39.9%, respectively. As anticipated, inventories (46.7%) contracted after growing in April, as companies completed pull-forward deliveries ahead of increased tariffs.

The New Orders Index contracted for the fourth consecutive month but at a slightly slower pace than the prior month, a 0.4 percentage point rise from April. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022. Of the six largest manufacturing sectors, two—petroleum and coal products; and machinery—reported an increase in new orders. Respondents noted weakening demand, with a lack of new orders from overseas customers being a key factor.

The New Export Orders Index contracted for a third consecutive month and at the fastest pace since the pandemic to 40.1%, 3.0 percentage points lower than April. The sharp contraction was due to the combination of slower global growth as well as the application of retaliatory tariffs applied to a variety of U.S.-manufactured products. Meanwhile, the Imports Index contracted for a second consecutive month, plunging 7.2 percentage points to 39.9% in May. Imports continue to contract as tariff pricing results in lower demand compared to prior months.

The Employment Index contracted for the fourth consecutive month but at a slower pace than the prior month, a 0.3 percentage point bump from April. Of the six-largest manufacturing sectors, only one—petroleum and coal products—reported increased employment. Companies continued to reduce headcounts through layoffs, attrition and hiring freezes, while opting for layoffs at an accelerating pace due to uncertainty around future demand.

The Prices Index fell 0.4 percentage points to 69.4%, indicating raw materials prices increased for the eighth straight month in May, driven by the dramatic rise in steel and aluminum prices impacting the entire supply chain, as well as the broad 10% tariff applied to imported goods. Forty-five percent of companies reported paying higher prices, down slightly from 49% in April but still up dramatically from 21% in January.