US Small Business Confidence Drops as Inflation Concerns Intensify
Synopsis
U.S. small business confidence declined in May as inflation concerns intensified and uncertainty remained elevated, according to the National Federation of Independent Business. The NFIB Small Business Optimism Index fell to 95.3, while more owners planned price increases amid rising energy and commodity costs linked to the Iran conflict. Hiring plans dropped to their lowest level since 2020 despite strong national employment data. Labor shortages persisted in sectors such as agriculture and wholesale trade. The survey suggests inflation pressures and economic uncertainty continue to challenge small businesses across the United States.
Key Insights
- US Small Business Optimism Index in May rose to 95.3
- With inflation still a huge worry for small businesses.
- Hiring to the lowest Sh level since May 2020.
- Iran War concerns and escalating energy costs have added to the uncertainty that businesses are facing in trying to recover from the slowdown.
USA Business Sentiment Lower as Their Inflation Fears Have Strengthened
The National Federation of Independent Business (NFIB) small business optimism index dropped 0.6 points to 95.3 in May, barely above its 52-year average of 98.0. Uncertainty is up on the survey three points to 91, a long way above its historical average of just 68.
Uncertainty continues to be a key obstacle to growth and investment, the NFIB said. The group cited the continuing U.S.-Israeli confrontation with Iran, with its potential implications for oil supplies and commodity prices as major threats to business confidence.
The pressures of inflation also remained strong. 34% of small business owners reported they intend to hike prices over the next three months, a 7-point month-on-month improvement from its highest level since July 2022.
Firms indicated that price increases also continued to be running very far above where they have been historically, which highlights those persistent inflation pressures across the whole economy. Having taxes as the foremost challenge for small business owners, inflation ranked second to this.
These pressures are expected to be reflected in fresh inflation data coming up. The U.S.Consumer Price Index (CPI) continues to rise 4.2% year-on-year in May, after a rise of 3.8% in April and the largest increase since last autumn.
The National Federation of Independent Business' employment index declined to 100.3 from 100.4 in April, the third consecutive monthly decrease. The share of owners who expect to create new jobs in the next three months remained unchanged at 9%, four points lower than the 3.5% historical average and its lowest level since May 2020.
Job openings may have declined, but labour shortages continued to weigh on some sectors. Only 29% of businesses said they had positions on which they couldn't find staff, down five points to the lowest since May 2020.
At the same time, business owners (in wholesale trade and agriculture) said they continue to have a problem hiring. Applicants missed interviews or did not report for work after taking offers in Ohio, some wholesalers said while agricultural businesses elsewhere in Michigan supplied jobs but struggled to fill them regardless of skill level. The NFIB points out that immigration restrictions may be exacerbating the agricultural labour shortage.
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