Small Businesses’ Optimism Rises, Taxes Remain a Concern
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.