U.S. small business confidence stalled in May: NFIB

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Confidence among U.S. small business owners flattened in May for the second month in a row, but expectations of future business conditions continued to deteriorate amid persistent inflation and a shortage of supply.

The NFIB Small Business Optimism Index declined marginally to 93.1 in May from 93.2 in April, the lowest level since April 2020, according to published data Tuesday by the National Federation of Independent Businesses. The reading is in line with economists’ expectations in a poll by The Wall Street Journal.

“Small business owners are still very pessimistic about the second half of the year, as supply chain disruptions, inflation and labor shortages are not being reduced,” he said. Chief Economist of the NFIB, Bill Dunkelberg.

The number of small business owners expecting better business conditions in the next six months fell further in May, reaching a new low in the survey’s nearly five-decade history.

Respondents were also more disadvantaged when assessing their short-term sales projections.

The NFIB survey is a monthly snapshot of U.S. small businesses, which account for nearly half of private sector jobs. Economists are looking for the report to read domestic demand and to extrapolate hiring and wage trends to the economy as a whole.

Earnings trends deteriorated during the month, and respondents reported higher labor and raw material costs, according to the report.

The number of respondents planning capital investments decreased slightly during the month.

Plans to increase employment rose sharply, but small businesses continued to struggle to fill open positions in a tight labor market. About 51% of respondents reported jobs they could not cover, four points more than in April, the NFIB said.

Inflationary pressures widened, according to the poll. The percentage of homeowners who raised average selling prices rose two points to 72%, returning to the highest reading in the 48-year history of the March survey.

“Inflation continues to outweigh the compensation that has reduced real incomes across the country,” Dunkelberg said. Price growth remains the biggest problem for entrepreneurs, according to the report.

According to the survey, bottlenecks in the supply chain showed no signs of reduction. Nearly 40% of homeowners reported that supply chain disruptions have had a significant impact on their business, three points more than in April.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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