(Reuters) – Confidence and hiring plans by U.S. small businesses rose in May to their highest levels this year, but the looming U.S. presidential election pushed uncertainty to a four-year high, a survey released on Tuesday showed.
The National Federation of Independent Business said its Small Business Optimism Index rose 0.8 percentage points to 90.5 last month, marking the second consecutive monthly increase after falling to its lowest level since December 2012 in March.
Despite the increase, it marked the 29th consecutive month that the index has remained below its 50-year average of 98. The NFIB’s Uncertainty Index rose nine points to 85, its highest reading since November 2020, the day of the last U.S. presidential election.
Twenty-two percent of business owners say inflation is their biggest operational challenge, unchanged from April, while the share of companies planning to raise prices increased two percentage points to 28%.
The net share of owners who raised their average selling prices was 25%, also unchanged from April. The Federal Reserve is closely monitoring the pace of price increases as it tries to bring inflation back to its 2% target.
There were some signs that small business owners were beginning to hold back on pay hikes: 37% of owners reported increasing compensation, down 1 percentage point from 38% in April, while 18% plan to increase compensation in the next three months, down 3 percentage points and the lowest level since March 2021.
Small businesses are feeling increasing pressure in the face of persistent inflation and high borrowing costs. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged on Wednesday at its current range of 5.25% to 5.50%, where it has been since July last year. The Fed has raised interest rates by 525 basis points since March 2022 to tame soaring inflation.
“Small business owners have expressed historically low optimism for the 29th consecutive month, and views about the future business environment are at their worst in the last 50 years,” said NFIB chief economist Bill Dunkelberg, with inflation again the top concern for small business owners.
With inflation remaining elevated and new evidence that the job market continues to add workers at a solid pace, financial markets have cut by nearly a fifth their expectations that the Fed will begin an easing cycle in September.
(Reporting by Lindsay Dunsmuir and Paul Simao Editing)
