U.S. small businesses signal higher pricing pressure as May sentiment weakens

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US small business pricing pressure

Highlights

NFIB Small Business Optimism Index fell 0.6 points to 95.3 in May, with the uncertainty index rising three points to 91, both below historical averages.
Planned price hikes among small business owners jumped seven points to 34%, highest since July 2022, while 36% reported actual increases, reflecting persistent inflation concerns.
NFIB employment index edged down to 100.3 for May and new job creation plans declined to 9%, the lowest since May 2020, signaling cautious hiring despite broader labor market strength.

NFIB survey shows weaker confidence and faster price plans

As reported by the National Federation of Independent Business, its Small Business Optimism Index slips 0.6 points to 95.3 in May, moving further below the 52-year average of 98.0, while the uncertainty index rises three points to 91 from a historical average of 68.

The group says uncertainty is restraining growth and investment, linking much of the pressure to the Iran war and its effects on global oil supply and other commodities. The U.S.-Israeli war with Iran, now in its fourth month, is driving up the cost of energy and other goods shipped through the Strait of Hormuz, adding to inflation pressure.

The survey also shows a sharp increase in planned price hikes. The share of owners planning to raise prices over the next three months jumps seven points to 34%, the highest reading since July 2022, while 36% report already raising prices, the highest since March 2023 and up six points from April. NFIB says those increases are well above the historical average of a net 13%, and small firms rank inflation as their second most important problem after taxes.

Labor market signals diverge from broader economy

Inflation concerns are building as economists expect the government to report on Wednesday that the Consumer Price Index rises 4.2% year over year in May, according to a Reuters survey. That would mark the largest increase since April 2023, after a 3.8% rise in April.

Small business owners are also more cautious on hiring than the broader labor market suggests. While the Labor Department's employment report last Friday shows three straight months of strong job growth and an unemployment rate holding at 4.3% for a third consecutive month in May, the NFIB employment index edges down to 100.3 from 100.4 in April, its third monthly decline in a row.

The share of owners planning to create new jobs over the next three months falls four points to 9%, the lowest level since May 2020 and below the historical average of a net 11%. Although the share of businesses with unfilled job openings declines five points to 29%, also the lowest since May 2020, labor shortages persist in sectors including wholesale trade and agriculture. NFIB cites reports from Ohio wholesalers of applicants failing to appear for interviews or jobs, while some agricultural businesses in Michigan say labor is in short supply at all levels, with immigration enforcement potentially contributing to the worker shortage.

Our earlier article on the Strait of Hormuz disruption explained how Iraq and the UAE are rushing pipeline expansions to keep oil moving as the war sharply reduces Gulf export flows. It detailed Iraq’s push to boost shipments via the Kurdistan–Turkey route and the UAE’s fast-tracked Fujairah capacity plans, while noting that bypass routes cannot fully replace Hormuz volumes and leave markets sensitive to renewed supply shocks.

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