The US small business optimism index reached its highest level of the year in May at 90.5, marking a 0.8-point increase from the previous month. However, it remains below the historical average of 98 for the 29th consecutive month. The uncertainty index also rose by nine points to 85, the highest level since November 2020. Inflation remains a major concern for small business owners, with 22% citing it as their top problem.
A recent report shows that 18% of owners plan to increase compensation in the next three months, down from April. 42% of owners reported unfilled job openings, the highest since March 2021, according to NFIB’s monthly jobs report.
Sales trends for small business owners have been challenging, with a net negative 14% reporting higher nominal sales and a net negative 13% expecting higher real sales volumes over the past three months. Inventory levels also reflect caution, with a net negative 7% reporting inventory gains and a net negative 8% viewing current inventory stocks as ‘too low.’ Future inventory investment plans remained unchanged from April, with a net negative 6% of owners planning to invest in inventory. This cautious stance may indicate uncertainties in the market impacting small businesses.
Pricing pressures continue to impact businesses, with a net 25 per cent of owners increasing selling prices. Inflation remains a significant concern for 22% of owners, with 12% reporting lower prices and 40% reporting higher prices. Price hikes were most common in the retail and manufacturing sectors. In terms of compensation, a net 37% of owners raised wages, but the percentage planning to do so in the future decreased to 18%. Labour market challenges persist, with labour costs being a top concern for 10% of owners. Overall, businesses are facing difficulties balancing pricing and compensation with ongoing economic challenges.
Profit trends among small business owners remained weak in May, with a net negative 30% reporting positive profit trends. Reasons for lower profits included weaker sales, rising material costs, and labour costs. Those reporting higher profits credited increased sales volumes and higher selling prices. Additionally, financing concerns have increased, with 6% of owners identifying it as their top business problem in May, the highest level since June 2010.
