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Economy in Brief

U.S. Small Business Optimism Dips in May to the Lowest Level since Apr. '20
by Winnie Tapasanun  June 14, 2022

• NFIB Optimism Index edges down in May; its fifth straight month below the 48-year average of 98.

• Uncertainty Index decreases to the lowest level since Dec. 2013.

• Outlook for business conditions in the next six months worsens to a record low.

• Five of the 10 index components rise.

• Inflation is the most major concern.

The NFIB Small Business Optimism Index ticked down to 93.1 in May after holding at 93.2 in April and March, according to the May 2022 Small Business Economic Trends survey conducted by the National Federation of Independent Business. The May figure was down from 99.6 last May. Five of the 10 index components increased, four fell, and one held steady. The NFIB Uncertainty Index dropped to 59 in May, the lowest level since December 2013, from 69 in April and 79 last May.

The outlook for business conditions in the next six months deteriorated further. The net balance of respondents expecting the economy to improve over the next six months dropped to -54% in May, a record low, from -50% in April and -26% last May. Expected real sales fell to a net -15% from -12% in April and 3% last May. Plans to make capital outlays declined to 25% this month, the lowest since June 2021, from 27% in April. Plans to expand the business rebounded 2 points to a net 6% in May following four successive monthly declines.

Small businesses are still having difficulty finding qualified employees to meet their demand and managing supply chain disruptions. An increased 61% of respondents reported that qualified workers to fill job openings were hard to find. The figure was the highest since September 2021 and up from 55% in April and 57% last May. A net 26% planned to increase employment in May, the highest reading since January, up from 20% in April but slightly down from 27% last May. Overall earnings trends deteriorated to -24% in May, the lowest since August 2020, after holding at -17% for four consecutive months.

Inflation pressures remained intense in May with a record-tied 72% of respondents raising average selling prices (also 72% in March), up from 70% in April and 40% last May. The percentage planning to raise prices increased to 47% this month from 46% in April and 43% last May.

Wage inflation also remained historically very high as a net 49% of respondents raised compensation during the last three months, slightly up from 46% in April and the January peak of 50% and noticeably up from 34% last May. Twenty-five percent of firms planned to raise worker compensation vs. 27% in April and 22% last May.

Regarding important issues for small businesses, inflation concerns declined to a still-high 28% in May, slightly down from 32% in April but up significantly from 8% last May. A steady 23% of owners said that labor quality was their top business problem, down from 26% last May. An increased 12% cited labor costs as their top business problem, the highest reading since December and up from 8% in April and last May.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

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