SURVEY: Small business optimism dips in May as labor shortage slows growth

NASHVILLE – The NFIB Small Business Optimism Index fell 0.2 points in May to 99.6. May saw a slight pause in the recovery of small business optimism after steadily increasing each month in 2021. As reported in NFIB’s monthly jobs report, a record-high 48% of owners reported unfilled job openings.

“The labor shortage is holding back growth for small businesses across the country,” said NFIB Chief Economist Bill Dunkelberg. “If small business owners could hire more workers to take care of customers, sales would be higher and getting closer to pre-COVID levels. In addition, inflation on Main Street is rampant, and small business owners are uncertain about future business conditions.” 

State-specific data is unavailable, but NFIB State Director Jim Brown said, “The numbers show how difficult it’s become for small businesses to find workers. Tennessee small business owners are hopeful the situation will improve soon because of the state’s decision to end federal pandemic-related unemployment compensation early. Until that happens, though, hiring will remain a challenge.” The federal benefit is set to expire in September, but Gov. Bill Lee said it will end in Tennessee effective July 3. 

Other key findings of the national survey include: 

  • Five of the 10 Index components improved, three declined, and two were unchanged. 
  • The NFIB Uncertainty Index decreased one point to 79. 
  • Job creation plans over the next three months rose to a net 27%, up six points. 
  • Owners expecting better business conditions over the next six months fell 11 points to a net negative 26%. 
  • Earnings trends over the past three months declined four points to a net negative 11%. 

Fifty-nine percent of owners reported capital outlays in the last six months, up two points from April. Of those making expenditures, 44% reported spending on new equipment, 24% acquired vehicles and 16% improved or expanded facilities. Six percent acquired new buildings or land for expansion and 13% spent money on new fixtures and furniture. Twenty-seven percent are planning capital outlays in the next few months. 

A net 7% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up four points from April. The net percent of owners expecting higher real sales volumes improved two points to a net 3%, a historically weak reading. 

The net percent of owners reporting inventory increases rose one point to a net negative 1%. A net 8% of owners view current inventory stocks as “too low” in May, up one point from April and at historically high levels. A net 6% of owners plan inventory investments in the coming months, up one point from April. 

The net percent of owners raising average selling prices increased four points to a net 40% (seasonally adjusted), the highest reading since April 1981. Unadjusted, 5% of owners reported lower average selling prices and 48% reported higher average prices. Price hikes were the most frequent in wholesale (65% higher, 2% lower), retail (53% higher, 5% lower) and manufacturing (47% higher, 1% lower). Seasonally adjusted, a net 43% of owners plan price hikes, up seven points. 

A net 34% (seasonally adjusted) reported raising compensation, the highest level in the past 12 months. A net 22% of owners plan to raise compensation in the next three months, up two points.  

Eight percent of owners cited labor costs as their top business problem and 26% said that labor quality was their top business problem. Higher labor costs are being passed on to customers through higher selling prices. 

The frequency of reports of positive profit trends declined four points to a net negative 11%. Among owners reporting lower profits, 38% blamed weaker sales, 17% cited a rise in the cost of materials, 12% cited the usual seasonal change, 8% cited labor costs, 7% cited lower prices and 6% cited higher taxes or regulatory costs.  

For owners reporting higher profits, 60% credited sales volumes, 18% cited the usual seasonal change and 14% cited higher prices. 

Three percent of owners reported that all their borrowing needs were not satisfied. Twenty-three percent reported all credit needs met and 62% said they were not interested in a loan. A net 2% reported their last loan was harder to get than in previous attempts. One percent of owners reported that financing was their top business problem. The net percent of owners reporting paying a higher rate on their most recent loan was 1%. Credit costs are at historically low levels.  

Click here to view the full report

About the Small Business Economic Trends Survey 

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in May 2021.  

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