The NFIB Small Business Optimism Index increased 0.4 points in May to 89.4, which is the 17th consecutive month below the 49-year average of 98. The last time the Index was at or above the average was in December 2021. Small business owners expecting better business conditions over the next six months declined one point from April to a net negative 50 percent. Twenty-five percent of owners reported that inflation was their single most important problem in operating their business, up two points from last month and followed by labor quality at 24 percent.

“Overall, small business owners are expressing concerns for future business conditions,” said Bill Dunkelberg, NFIB Chief Economist. “Supply chain disruptions and labor shortages will continue to limit the ability of many small firms to meet the demand for their products and services, while less severe than last year’s experience.”

Key findings include:

• Forty-four percent of owners reported job openings that were hard to fill, down one point from April and remaining historically very high.
• The net percent of owners raising average selling prices decreased one point to a net 32 percent (seasonally adjusted), still an inflationary level but trending down.
• The net percent of owners who expect real sales to be higher deteriorated two points from April to a net negative 21 percent.

As reported in NFIB’s monthly jobs report, owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 19 percent planning to create new jobs in the next three months. Overall, 63 percent of owners reported hiring or trying to hire in May, up three points from April. Of those hiring or trying to hire, 89 percent of owners reported few or no qualified applicants for their open positions.

Fifty-seven percent of owners reported capital outlays in the last six months, up one point from April. Of those making expenditures, 38 percent reported spending on new equipment, 24 percent acquired vehicles, and 12 percent spent money on new fixtures and furniture. Fifteen percent improved or expanded facilities and 7 percent acquired new buildings or land for expansion. Twenty-five percent of owners plan capital outlays in the next few months, up six points from April.

A net negative 8 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes deteriorated three points to a net negative 21 percent.

The net percent of owners reporting inventory increases increased five points to a net negative 2 percent. Not seasonally adjusted, 15 percent of owners reported increases in stocks and 14 percent reported reductions. Twenty percent of owners recently reported that supply chain disruptions still have a significant impact on their business. Another 32 percent reported a moderate impact and 31 percent reported a mild impact.

A net negative 3 percent of owners viewed current inventory stocks as “too low” in May, up two points from April. By industry, shortages are reported most frequently in retail (17 percent), manufacturing (15 percent), finance (13 percent), and agriculture (8 percent). Shortages in construction (3 percent) have reduced. A net negative 2 percent of owners plan inventory investment in the coming months.

The net percent of owners raising average selling prices decreased one point from April to a net 32 percent (seasonally adjusted), the lowest since March 2021. Unadjusted, 12 percent of owners reported lower average selling prices and 47 percent reported higher average prices. Price hikes were the most frequent in retail (62 percent higher, 6 percent lower), wholesale (54 percent higher, 19 percent lower), construction (50 percent higher, 4 percent lower), and finance (49 percent higher, 3 percent lower). Seasonally adjusted, a net 29 percent plan price hikes (up eight points).

Seasonally adjusted, a net 41 percent of owners reported raising compensation, up one point from April. A net 22 percent plan to raise compensation in the next three months, up one point. Ten percent of owners cited labor costs as their top business problem and 24 percent said that labor quality was their top business problem. Labor quality was in second place as the top business problem.

The frequency of reports of positive profit trends was a net negative 26 percent, down three points from April. Among owners reporting lower profits, 29 percent blamed weaker sales, 26 percent blamed the rise in the cost of materials, 13 percent cited the usual seasonal change, 12 percent cited labor costs, 6 percent cited lower prices, and 3 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 52 percent credited sales volumes, 17 percent cited higher prices, and 16 percent cited usual seasonal change.

One percent of owners reported that all their borrowing needs were not satisfied. Twenty-seven percent reported all credit needs met and 63 percent said they were not interested in a loan. A net 6 percent reported their last loan was harder to get than in previous attempts.

Four percent of owners reported that financing was their top business problem. A net 24 percent of owners reported paying a higher rate on their most recent loan, down two points from April.