Small business optimism perks up in May

Summary

Small business sentiment improves, but challenges remain

Small business sentiment rose in May for the first time this year, coinciding with an agreement on May 12 to lower tariffs between the United States and China. The NFIB Small Business Optimism Index bounced three points in May to 98.8. This move erased the prior month's decline and brought the measure back up above its longer-term average. That said, a simultaneous increase in small business uncertainty highlights the evolving nature of trade negotiations. There also appears to be a disconnect between current conditions on the ground and the economic outlook. Small firms’ expectations for business conditions and sales meaningfully strengthened in May while reports of actual sales, earnings and capital expenditures each deteriorated. Hiring plans also sank one point to 12% and the share of firms with job openings remained unchanged at the lowest reading since January 2021. Price and compensation pressures remain contained at present amid a directional deterioration in the labor market. However, an uptick in plans to raise prices possibly points to higher inflation readings this summer.

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