The NFIB Small Business Optimism Index increased for the first time in five months, rising to 98.8 in May. The latest reading was above the 95.9 forecast and pushes the index back above its historical average for the first time in three months. The index is at the 46th percentile of the series.
Key Takeaways from May's report:
- The net percent of small business owners expecting higher sales volume increased and contributed the most the index's improvement.
- The net percent of small business owners expecting better business conditions increased.
- The net percent of small business owners who viewed current inventory stocks as "too low" rose to its highest level since August 2022 and experienced its largest monthly increase in survey history.
- The percent of small businesses planning capital outlays increased to its highest reading of the year.
- For the first time since December 2020, taxes were the top issue reported for small business owners. Labor quality and inflation remain as other top issues.
- Overall health of their business: Excellent (14%), Good (55%), Fair (28%), Poor (4%)
The first chart below tracks the NFIB Small Business Optimism Index since 1986, with a baseline level of 100. Notice the sharp declines in sentiment during the Great Financial Crisis and the COVID-19 pandemic. In contrast, the index showed relative resilience during the 2000-2003 Tech Bubble collapse. Following the Great Recession, small-business sentiment remained weak for an extended period, a pattern that closely resembled the past two years of pandemic-related disruptions and high inflation. Another interesting pattern to the index was the nearly identical jumps following the 2016 and 2024 elections.
The average monthly change in the NFIB Small Business Optimism Index is 1.4 points. To filter out short-term fluctuations, the chart below presents a 3-month moving average alongside the individual monthly values, represented by dots.
NFIB Small Business Survey Components
The NFIB Small Business Optimism Index is composed of 10 components. In May, seven components increased, two declined, and one was unchanged.
Business Optimism and Consumer Attitudes
The next few charts are overlays of the Business Optimism Index with two of the main measures of consumer attitudes: Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index. The Consumer Confidence Index is influenced by employment and labor market conditions from the worker's perspective whereas the Michigan Sentiment Index is more focused on employment conditions from the business perspective. (For more information on how these indexes measure up against each other, check out our monthly update Two Measures of Consumer Attitudes: MCSI vs. CCI).
In our first chart comparing the NFIB Small Business Optimism Index with the Conference Board Consumer Confidence Index, we can see that the consumer measure is the more volatile of the two. Therefore, it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.
Next, we compare the NFIB Small Business Optimism Index with the University of Michigan Consumer Sentiment Index. Again, we've plotted each index on a separate axis, however in this chart, we can see that the business measure is more volatile of the two.
Despite the volatility though, we can see that these two measures of mood (business and consumer) have been highly correlated, falling and rising together for the most part. A decline in Small Business Sentiment was a long leading indicator for the first two recessions of the century, but clearly not for the Covid-19 recession.
