The NFIB Small Business Optimism Index climbed to 90.5 in May, marking the highest reading of the year with a 0.8-point increase. However, it remains the 29th consecutive month below the historical average of 98. Additionally, the Uncertainty Index surged by nine points to 85, its highest level since November 2020. Inflation continues to be a significant concern, with 22% of small business owners citing it as their primary operational challenge, unchanged from April and the top issue for owners. 

Economic significance 

“The small business sector is responsible for the production of over 40% of GDP and employment, a crucial portion of the economy,” NFIB Chief Economist Bill Dunkelberg said. “But for 29 consecutive months, small business owners have expressed historically low optimism and their views about future business conditions are at the worst levels seen in 50 years. Small business owners need relief as inflation has not eased much on Main Street.” 

The view from Arizona 

“There’s no doubt that the small business economy is struggling,” NFIB State Director Chad Heinrich said. “Small business owners need Congress to cut their taxes permanently and end the ‘beneficial ownership’ mandate. In this challenging and uncertain economic environment, we need lawmakers here in Phoenix and in Washington, D.C. to stand up for Main Street.” 

Key findings 

•  Inventory Levels: A net negative 8% of owners viewed their current inventory stocks as “too low” in May, the lowest reading since October 1981.
• Hiring Plans: Plans to hire rose three points to a net 15%, the highest reading of the year.
• Price Hikes: A net 28% plan to raise prices, up two points from April.
• Financing Issues: Six percent of owners reported financing as their top business problem, the highest since June 2010.

According to the NFIB’s monthly jobs report, 18% plan to raise compensation in the next three months, down three points from April and the lowest since March 2021. Forty-two percent reported job openings they couldn’t fill. 

Capital outlays and sales 

Fifty-eight percent of owners reported capital outlays in the last six months, up two points from April. Of those, 40% invested in new equipment, 25% acquired vehicles, and 16% improved or expanded facilities. Looking ahead, 23% plan capital outlays in the next six months, up one point from April. 

Sales figures show a net negative 14% of owners reported higher nominal sales over the past three months. Expectations for higher real sales volumes dropped to a net negative 13%. 

Labor and profit concerns 

Labor costs were cited by 10% of owners as their top business problem, just three points below the December 2021 peak. Labor quality was highlighted by 20% as their primary issue, second only to inflation. 

Profit trends remain troubling, with a net negative 30% reporting lower profits, a three-point decline from April. Among those reporting lower profits, 32% blamed weaker sales, 15% cited rising material costs, 14% pointed to labor costs, and 11% mentioned lower selling prices. Conversely, 41% of those with higher profits attributed it to sales volumes, 23% to seasonal changes, and 10% to higher selling prices. 

The NFIB Research Center has been collecting data on small business economic trends since 1973, conducting monthly surveys since 1986. This survey was conducted in May 2024 and the report is released on the second Tuesday of each month.