The National Federation of Independent Business (NFIB) reported that its Optimism Index, a gauge of sentiment among small businesses, rose to 98.8 in May from 95.8 in April, bringing the Index back above its long-term average, represented by a reading of 98. The increase ends a four-month streak of weakening sentiment.

Expected business conditions and sales expectations contributed the most to the rise in the Index.

The Uncertainty Index rose two points from April to 94. Eighteen percent of small business owners reported taxes as their top problem, up two points from April. The last time taxes ranked as the top single most important problem was in December 2020.

“Although optimism recovered slightly in May, uncertainty is still high among small business owners,” said NFIB Chief Economist Bill Dunkelberg. “While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth.”

Additional key findings include:

  • A net 1 percent, seasonally adjusted, of business owners viewed current inventory stocks as “too low” in May, up 7 points from April and the highest reading since August 2022. It is also the largest monthly increase in the survey’s history.
  • The net percent of business owners expecting better business conditions rose 10 points from April to a net 25 percent, seasonally adjusted.
  • The net percent of business owners expecting higher real sales volumes rose 11 points from April to a net 10 percent, seasonally adjusted. This component contributed the most to the improvement of the Optimism Index.
  • Twenty-two percent, seasonally adjusted, plan capital outlays in the next six months, up four points from April and the highest reading of this year.
  • The percentage of small business owners reporting labor quality as the most critical problem for their businesses fell three points from April to 16 percent.
  • Fourteen percent of business owners reported that inflation was their single most important problem in operating their business, unchanged from April.
  • When asked to rate the overall health of their business, 14 percent reported “Excellent,” up one point, and 55 percent reported “Good,” down one point. Twenty-eight percent reported that the health of their business was “Fair,” up one point, and 4 percent reported it as “Poor,” unchanged.

As reported in NFIB’s Monthly Jobs Report, a seasonally adjusted 34 percent of all small business owners reported job openings they could not fill in May, unchanged from April. Of the 55 percent of business owners who were hiring or trying to hire in May, 86 percent reported having few or no qualified applicants for the positions they were trying to fill. A seasonally adjusted net 12 percent of business owners plan to create new jobs in the next three months, down one point from April.

Business owners reported that labor costs were the most important problem, rising one point in May to 9 percent.

Seasonally adjusted, a net 26 percent of business owners reported raising compensation, down seven points from April. A seasonally adjusted net 20 percent plan to raise compensation in the next three months, up three points from April.

Fifty-six percent of business owners reported capital outlays in the last six months, down two points from April and the lowest reading of this year.

Of those making expenditures, 40 percent of business owners reported spending on new equipment, 26 percent acquired vehicles and 15 percent improved or expanded facilities. Business owners spent 10 percent of their budget on new fixtures and furniture and allocated 5 percent for acquiring new buildings or land for expansion.

In May, the percentage of small business owners reporting poor sales as their top business problem remained at 9 percent for the fifth consecutive month. A net negative 13 percent of all owners, seasonally adjusted, reported higher nominal sales in the past three months, down five points from April.

The net percent of business owners reporting inventory gains was unchanged from April at a net negative 5 percent, seasonally adjusted. Not seasonally adjusted, 14 percent reported increases in stock, and 16 percent reported reductions. A net 1 percent, seasonally adjusted, of business owners viewed current inventory stock as “too low” in May, up seven points from April and the highest reading since August 2022.

Seasonally adjusted, a net 31 percent of business owners planned price hikes in May, up three points from April. The net percentage of owners raising average selling prices remained unchanged from April at 25 percent, seasonally adjusted. Unadjusted, 10 percent of owners reported lower average selling prices, and 38 percent reported higher average prices.

The frequency of reports of positive profit trends was a net negative 26 percent, seasonally adjusted, in May, five points lower than in April.

Among owners reporting lower profits, 36 percent blamed weaker sales, 13 percent cited the rise in material costs, 11 percent cited the usual seasonal change, and 8 percent cited labor costs.

For business owners reporting higher profits, 52 percent attributed the increase to sales volumes, 27 percent cited the usual seasonal change and 8 percent cited higher selling prices.

Five percent of business owners reported that financing and interest rates were their top business concern in May, up two points from April. Twenty-five percent of all owners reported borrowing regularly, a one-point decrease from April. A net 4 percent reported their last loan was harder to get than in previous attempts, down one point from April. A net 7 percent reported paying a higher rate on their most recent loan, up one point from April.

Ten percent, seasonally adjusted, of business owners reported that it is a good time to expand their business, up one point from April. Despite the increase, this remains a historically low reading.

Eighteen percent of small business owners reported taxes as their single most important problem, up two points from April and ranking as the top problem. The last time small business owners ranked taxes as the top single most important problem was in December 2020, when it tied for first with labor quality.

The percentage of small business owners reporting government regulations and red tape as their single most important problem remained at 9 percent. Four percent reported competition from large businesses as their single most important problem, down three points from April.

The NFIB Research Center has collected data on small business economic trends through quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986.