NFIB Small Business Optimism Improves in May

The Small Business Optimism Index from the National Federation of Independent Business improved to 90.5 during May from 89.7 in April, revised from 88.5. Survey respondents, however, became more tentative about the future. The Business Uncertainty Index moved up to 85 last month from 78 in April. It has increased from a low of 55 in June 2022.

The net balance expecting economic improvement rose to -30% in May from -37% in April. The net balance expecting higher real sales in six months, however, declined to -13% last month from -12% in April. The balance reporting that now was a good time to expand the business was 4% for the third straight month, though it was increased from a March 2023 low of 2%. Earnings trends deteriorated modestly and reversed the prior month’s improvement, but expected credit conditions improved after a modest deterioration in April.

The labor market readings were similarly mixed in May. The reading for current job openings increased to 42%, the highest level since October, but remained below the May 2022 high of 51%. The reading for the percent of firms planning to raise employment also rose to 15% from 12% but remained well below the high of 32% in August 2021. The percent of firms reporting few or no qualified applicants for job openings held steady at 51%. It remained well below the September 2021 high of 62%. The quality of labor was considered the single most important problem by an increased 20% of firms, up from 16% in February.

The percent of firms planning to add to inventories held steady in May at -6% after falling sharply from zero in October. That figure compared to a low of -8% in January 2023. A record low -8% of respondents on balance indicated that inventories were too low.

Labor compensation pressures remained muted. The May reading showed that a net 37% of respondents increased compensation over the last three months, down from 50% in January of 2022. Just a net 18% expect to raise compensation in the next three months, down from 30% six months ago. The cost of labor in May was viewed as the biggest problem by a lessened 10% of respondents, but that was increased from a low of 8% in November of last year.

Pricing pressures held steady in May. The net balance of firms increasing their average selling prices held at 25% after falling from 28% in March. This figure remained down from 32% twelve months earlier and a March 2022 high of 66%. The net balance planning to increase selling prices in the next three months rose to 28% from 26% in April. It remained up from an April 2023 low of 21%. Inflation was viewed as the single most important problem by a steady 22% of respondents, up from a 20% January low.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.