Small business confidence across the nation declined last month as owners increasingly worry about rising costs and plan to hike prices, according to a new survey released Tuesday.
The National Federation of Independent Business reported that its Small Business Optimism Index dropped 0.6 points to 95.3 in May, continuing to fall below the 52-year historical average of 98.0. Meanwhile, the survey’s uncertainty measure climbed three points to 91, significantly higher than the long-term average of 68.
“Uncertainty is the enemy of growth and investment, and it is high,” the NFIB stated. “Much is related to the Iran war and its impact on the global oil supply and other commodities, the sooner it’s resolved, the quicker some ‘normality’ will be restored.”
The ongoing U.S.-Israeli conflict with Iran, now entering its fourth month, has pushed up energy costs and prices for goods traveling through the Strait of Hormuz, contributing to inflationary pressures.
Economic forecasters predict Wednesday’s Consumer Price Index report will show inflation accelerated to 4.2% year-over-year in May, according to a Reuters economist survey. This would mark the steepest increase since April 2023, up from April’s 3.8% rate.
The business survey revealed that 34% of small business owners intend to boost prices over the next three months, jumping seven points and reaching the highest percentage since July 2022. Additionally, 36% of respondents said they already implemented price increases, the most since March 2023 and up six points from the previous month.
These actual price hikes were “well above the historical average of net 13%,” according to the NFIB. Business owners ranked inflation as their second-biggest challenge, trailing only taxes.
Despite last Friday’s Labor Department employment report showing three consecutive months of solid job creation and unemployment holding steady at 4.3% for the third straight month in May, small business owners expressed less enthusiasm about hiring prospects.
The survey’s employment measure decreased slightly to 100.3 from April’s 100.4, marking the third consecutive monthly decline. Only 9% of owners plan to add jobs in the next quarter, down four points and representing the lowest figure since May 2020. The NFIB observed that “plans to hire are now below the historical average of a net 11%.”
Although the percentage of owners reporting unfillable job openings fell five points to 29% – also the lowest since May 2020 – labor shortages persist in certain sectors, particularly wholesale trade and agriculture.
Wholesale businesses in Ohio noted they “have applicants not show up for interviews and others apply, interview, accept, and not show up for work.”
Agricultural operations in Michigan reported that “labor is in short supply for all levels.” Immigration enforcement actions may be contributing to the farm worker shortage.
