The NFIB Small Business Optimism Index dropped 0.6 points to 95.3, missing the forecast of 96.0 and hitting its lowest level since October 2024. The latest reading keeps the index below its historical average for a third straight month and puts it in the 29th percentile of the series.
“AI investment spending has contributed to some excitement in the economy,” said NFIB Chief Economist Bill Dunkelberg. “Despite the enthusiasm around AI, the overall picture is divided. More small business owners are struggling with significant and unpredictable hikes in fuel prices, which are more challenging for small businesses to pass on to their customers compared to their larger corporate competitors.”
Key Takeaways from May's report:
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Labor Costs Hit an All-Time High: 14% of small business owners reported labor costs as their single most important problem. This is a 5-point jump from April and represents the highest reading in the entire history of the survey.
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Capital Spending Plummets to a 17-Year Low: Only 16% of owners plan to make capital investments (like equipment or property) in the next six months. This 1-point drop from April marks the lowest level since March 2009.
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Job Openings Drop to Pandemic-Era Lows: 29% of owners reported having job openings they couldn't fill. While still a significant chunk, this is down 5 points from April and is the lowest level seen since May 2020.
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Hiring Plans are Weakening: Only a net 9% of small business owners plan to create new jobs over the next three months, a 4-point drop from April that ties for the lowest level since May 2020.
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Prices and Hikes are Surging Again: Inflation pressures are ramping back up. A net 36% of owners raised their average selling prices (the highest since March 2023), and 34% plan to hike prices even further in the coming months (the highest since July 2022).
- Overall health of business evaluations: Excellent 11%, Good 55%, Fair 28%, Poor 5%
The first chart below tracks the NFIB Small Business Optimism Index since 1986, with a baseline level of 100. Notice the sharp declines in sentiment during the Great Financial Crisis and the COVID-19 pandemic. In contrast, the index showed relative resilience during the 2000-2003 Tech Bubble collapse. Following the Great Recession, small-business sentiment remained weak for an extended period, a pattern that closely resembled the past two years of pandemic-related disruptions and high inflation. Another interesting pattern to the index was the nearly identical jumps following the 2016 and 2024 elections.
The average monthly change in the NFIB Small Business Optimism Index is 1.4 points. To filter out short-term fluctuations, the chart below presents a 3-month moving average alongside the individual monthly values, represented by dots.
NFIB Small Business Survey Components
The NFIB Small Business Optimism Index is composed of ten components. In May, three components increased, six declined, and one was unchanged.
Business Optimism and Consumer Attitudes
The next few charts are overlays of the Business Optimism Index with two of the main measures of consumer attitudes: Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index. The Consumer Confidence Index is influenced by employment and labor market conditions from the worker's perspective whereas the Michigan Sentiment Index is more focused on employment conditions from the business perspective. (For more information on how these indexes measure up against each other, check out our monthly update Two Measures of Consumer Attitudes: MCSI vs. CCI).
In our first chart comparing the NFIB Small Business Optimism Index with the Conference Board Consumer Confidence Index, we can see that the consumer measure is the more volatile of the two. Therefore, it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.
Next, we compare the NFIB Small Business Optimism Index with the University of Michigan Consumer Sentiment Index. Again, we've plotted each index on a separate axis, however in this chart, we can see that the business measure is more volatile of the two.
Despite the volatility though, we can see that these two measures of mood (business and consumer) have been highly correlated, falling and rising together for the most part. A decline in Small Business Sentiment was a long leading indicator for the first two recessions of the century, but clearly not for the Covid-19 recession.
