U.S. NFIB Small Business Optimism Index (May 2022)

Shernette McLeod, Economist

Date Published: June 14, 2022

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Small business confidence dips in May on inflation worries

  • The NFIB's small business optimism index dipped marginally in May to 93.1 from 93.2 in April, the lowest level since April 2020. This was largely in line with the consensus forecast, which expected the index to drop even further to 93. April marked the fifth consecutive month that the index was below the 48-year average of 98. 
  • Beneath the headline, five of the ten subcomponents rose on the month, four declined and one remained unchanged. Firms reporting higher earnings fell 7 points. Those expecting the economy to improve fell 4 points. This indicator has fallen every month since the start of the year. Small businesses expecting higher real sales pulled back by 3 points while those planning capital expenditures declined by 2.
  • On the upside, firms expecting credit conditions to ease rose by 1 point. Those believing that now is a good time to expand as well as those who viewed inventories as 'too low' both advanced by 2 points. Firms with plans to add to inventories remained unchanged.
  • Most labor market indicators were up over the month. A net 49% of firms raised compensation to attract workers (up 3 points over April and just one point below the 48-year record high set in January). However, fewer firms are planning to raise compensation in the next 3 months (down 2 points to 25%). Firms planning to increase employment rose 6 points to 26%, and the number of firms with unfilled job openings rose by 4 points to 51%, matching the 48-year record high set in September 2021. 

Key Implications

  • And the hits keep on coming. Optimism among America's small businesses continued to drift lower in May. Firms are facing a myriad of problems, the confluence of which has pushed confidence to its lowest level in almost 50 years. What 's more, expectations for improvement over the next few months are also at their lowest level in the survey's history.
  • Labor shortages continued to pose a challenge. Even as small business owners try to contain costs, some are finding they may have limited options in avoiding higher wages as they struggle to attract qualified workers in one of the tightest labor markets in history.
  • While frustrating for many businesses, labor quality still trailed inflation for the fourth consecutive month as the top problem facing small businesses. Persistently high inflation coupled with volatile supply chains and heightened global geopolitical tensions have combined to create a virtual minefield for small businesses, leaving many grappling with how to navigate these unprecedented and unpredictable times.          

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