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US' small business optimism reaches highest level of year in May: NFIB

14 Jun '24
3 min read
US' small business optimism reaches highest level of year in May: NFIB
Pic: Adobe Stock

Insights

  • The US small business optimism index reached 90.5 in May 2024, its highest this year, though still below the historical average.
  • The uncertainty index rose to 85.
  • Inflation remains the top concern for 22 per cent of owners.
  • Employment, sales, and inventory trends showed mixed results, with rising labour and material costs impacting profits.
The US’ small business optimism index reached its highest reading of the year in May, climbing to 90.5, according to the National Federation of Independent Business (NFIB). This represents a 0.8-point increase from the previous month, though it remains the 29th consecutive month below the historical average of 98.

The uncertainty index also rose significantly, jumping nine points to 85, the highest level since November 2020. Despite the rise in optimism, inflation continues to be the predominant concern for small business owners, with 22 per cent citing it as their single most important problem, unchanged from April.

A seasonally adjusted net 18 per cent of owners plan to raise compensation in the next three months, a decrease of three points from April and the lowest reading since March 2021. Additionally, 42 per cent of owners (seasonally adjusted) reported job openings they could not fill during the current period, according to NFIB’s monthly jobs report.

Sales trends have also been challenging, with a net negative 14 per cent of owners (seasonally adjusted) reporting higher nominal sales over the past three months. The net percentage of owners expecting higher real sales volumes fell by one point to a net negative 13 per cent (seasonally adjusted).

Inventory levels reflect the cautious stance of small business owners. The net percentage reporting inventory gains fell by one point to a net negative 7 per cent. Not seasonally adjusted, 11 per cent reported stock increases while 15 per cent reported reductions. A net negative 8 per cent (seasonally adjusted) of owners viewed current inventory stocks as ‘too low,’ the lowest reading since October 1981. Plans for future inventory investment remained unchanged from April, with a net negative 6 per cent (seasonally adjusted) of owners planning to invest in inventory.

Pricing pressures persist, with a net 25 per cent of owners raising average selling prices, unchanged from April on a seasonally adjusted basis. Inflation remains the most significant problem for 22 per cent of owners. Unadjusted figures show that 12 per cent reported lower average selling prices, while 40 per cent reported higher prices. Price hikes were most common in the retail (55 per cent higher, 6 per cent lower) and manufacturing (42 per cent higher, 12 per cent lower) sectors. Seasonally adjusted, a net 28 per cent of owners planned price increases in May.

Compensation trends reflect ongoing labour market challenges. A net 37 per cent of owners (seasonally adjusted) reported raising compensation, down one point from April. The percentage of owners planning to raise compensation in the next three months fell to 18 per cent, down three points from April and the lowest reading since March 2021. Labour costs were cited as the top business problem by 10 per cent of owners, while 20 per cent said labour quality was their primary issue, just behind inflation.

Profit trends remained weak, with a net negative 30 per cent (seasonally adjusted) of owners reporting positive profit trends, three points worse than April. Among those reporting lower profits, 32 per cent blamed weaker sales, 15 per cent pointed to rising material costs, 14 per cent cited labour costs, and 11 per cent mentioned lower selling prices. For those reporting higher profits, 41 per cent credited increased sales volumes, 23 per cent cited usual seasonal changes, and 10 per cent pointed to higher selling prices.

Lastly, financing concerns have risen, with 6 per cent of owners identifying it as their top business problem in May, up two points from April. This is the highest level for this concern since June 2010.

Fibre2Fashion News Desk (DP)

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