U.S. NFIB Small Business Optimism Index (May 2025)

Small Business Optimism Index increases in May, marking first improvement of 2025  

• The NFIB's Small Business Optimism Index increased by 3 points to 98.8 in May, coming in slightly above its long-term average of 98. The May increase marked the first improvement of the year. The uncertainty subindex rose 2 points to 94.
• Seven out of ten subcomponents improved on the month, two deteriorated and one remained unchanged. Large increases were reported in expectations about an improvement in the economy (up 10 points to 25%) and higher real sales (up 11 points to 20%). Notable improvements were also recorded in current inventory (up 7 points to 1%), plans to increase inventories (up 3 points to -1%) and plans to make capital outlays (up 4 points to 22%).
• Labor market indicators were mixed. The net share of businesses planning to increase employment fell 1 point to 12%, while the share of firms with unfilled job openings remained unchanged at 34%. Quality of labor concerns fell 3 points to 16%. Instead, the top business problem were taxes (up 2 points to 18%). 
• The net share of firms increasing employee compensation fell a sharp 7 points to 26% – the lowest level since early 2021. Meanwhile, the net share 'planning' to raise wages in the months ahead rose 3 points 20%. The share of businesses raising average selling prices held steady at 25%, while the share of those 'planning' to raise average selling prices ahead rose 3 points to 31%.

Key Implications

• Small business confidence improved moderately in May, rising a hair above its long-term average. While uncertainty remained elevated, as indicated by the corresponding subindex, a mid-May de-escalation in the U.S.-China trade skirmish is likely to have helped reduce concerns among small businesses, contributing to an improved view about the economy, future sales performance, and inventory levels.
• Parsing through the details of the report, some easing in the labor market indicators is also visible. For a few years now, inflation and quality of labor concerns have competed head-to-head for the 'top business problem' spot, but as these concerns have subsided, taxes have vaulted into first place. Easing quality of labor concerns, together with subdued small business hiring plans and job openings at a post-pandemic low, are added signs that the labor market is slowly cooling.          

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