NFIB Small Business Survey: Mostly Unchanged In May; Inventory, Inflation Problematic

By Jill Mislinski

The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for May came in at 93.1, down fractionally from the previous month. The index is at the 16th percentile in this series.

Here is an excerpt from the opening summary of the news release.

The Optimism Index fell 0.1 point in May to 93.1. This is the fifth consecutive month below the 48-year average of 98. The Index has declined every month this year through May. Five of the 10 Index components improved, four declined, and one was unchanged. Owners expecting better business conditions over the next six months decreased 4 points to a net negative 54 percent, the lowest level recorded in the 48-year-old survey. Expectations for better business conditions have deteriorated every month since January. The net percent of owners raising average selling prices increased 2 points to a net 72 percent seasonally adjusted, the highest reading in the 48-yearhistory of the survey and 32 points higher than May 2021.

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small business sentiment that accompanied the Great Financial Crisis and now the COVID-19 pandemic. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009 and today’s figures.

Here is a closer look at the indicator since the turn of the century.

The average monthly change in this indicator is 1.4 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the previous two recessions (but clearly not for the current recession).

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.