U.S. NFIB Small Business Optimism Index Rebounds in May

The NFIB Small Business Optimism Index increased 3.1% to 98.8 in May after falling 1.6% to an unrevised 95.8 in April, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index also fell in each month from January through April. It increased 9.2% y/y through May. Seven of the ten index components increased last month. The NFIB Small Business Uncertainty Index rose 2.2% (10.6% y/y) in May to 94, after falling sharply in the prior two months.

The outlook for business conditions improved in the latest survey. The net balance of respondents expecting the economy to improve rose to 25% last month from 15% in April. An increased 10% expected higher real sales in six months, compared to -1% in April. An increased 10% of respondents indicated that now was a good time to expand the business. The figure remained up from 4% last September.

Plans to make capital outlays improved to 22% of firms after falling to 18% in April. Plans to add to inventories rose to 1% of survey respondents, improved from the April deterioration to -4%. The index of expected credit conditions rose to -4% last month, up from the April deterioration to -7%. It remained up from a low of -11 in November 2023. On the labor front, the percent planning to increase employment eased to 12% from 13% in April. A slightly higher 48% of businesses reported few or no qualified workers to fill job openings in May, after holding at 47% in April. These readings remained below a high of 61% in May 2022.

The net percent of firms reporting higher earnings weakened to -26% last month after improving to -21% in April. The figure was increased from the August low of -37%.

On the pricing front, the net percent raising their average selling prices held at 25% last month. It had grown to 32% in February. The percentage planning to raise prices rose to 31% in May from 28% in April. Worker compensation retreated as a net 26% of respondents lifted compensation during the last three months versus 33% in the last survey. Compensation gains peaked at 50% of firms in January 2022. An increased net 20% of firms are making plans to raise worker compensation in the next three months, below November’s high of 28%.

Taxes were reported as the single most important issue facing small businesses, as reported by 18% of NFIB members in May. These were followed by 16% citing the quality of labor and 14% reporting inflation as the most important problems. Other major concerns were the cost of labor at 9% and government requirements, also 9%.

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.