The NIFB small business optimism index is up 1.1 points to 90.5 in May after 89.7 in April and is the highest reading so far in 2024. It is above the consensus of 89.7 in the Econoday survey of forecasters. The NFIB noted the index remains below the 50-year average of 98 for the 29th straight month. Five of the 10 survey components are higher in May, four are lower, and one is unchanged. The improvement comes in some of the forward-looking components which might suggest that the NFIB survey respondents are a bit more confident about the economy. Perhaps, but the uncertainty index took a jump to 85 in May after 78 in April and is the highest since 90 in November 2020. Some of this will be concerns about persistent inflation and some disappointment that the FOMC is unlikely to lower rates in the near future. However, this is also a reflection of the approaching presidential election. Small businesses typically see times as more uncertain with the prospect of a change in administration in not many months.

The largest positive contributions to the index in May came from a 7-point rise in expectations for the economic to improve to minus 30 percent; this is the highest since minus 30 percent in July 2023. Also higher are plans to increase employment at up 3 points to 15 percent, its highest since 16 percent in December. Along with a 2-point increase in current job openings to 42 percent, its highest since 43 percent in September 2023.

The largest negative contributions to the index in May are 4-point declines in now is a good time to expand to 4 percent and minus 8 percent for current inventory too low.

In May, 22 percent of NFIB survey respondents reported their single most important problem is inflation and 20 percent said it is the quality of labor. Small businesses continue to feel the disadvantages of a competitive labor market, and the persistence of inflation that is raising input costs at a time when it is more difficult to pass these on to the customer.

With 50 years of data, the small business optimism index has been below the historical average of 98 since January 2022 and below 90 the last four reports. May's consensus is for no change from 89.7 in April.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.