Small Business Confidence Slips as Fuel Costs, Labor Pressures, and Inflation Squeeze Main Street

NFIB Report Signals Economic Headwinds as Hiring Plans Retreat, Job Openings Hit Post-Pandemic Low

Small businesses across the United States are growing increasingly cautious about the economic outlook as rising fuel costs, labor shortages, inflation concerns, and supply chain disruptions continue to pressure Main Street, according to new data released by the National Federation of Independent Business (NFIB).

The NFIB's May Small Business Economic Trends report paints a sobering picture of the nation's small-business sector, with declining optimism, elevated uncertainty, and weakening hiring plans suggesting that economic headwinds are beginning to weigh more heavily on entrepreneurs and consumers alike.

The NFIB Small Business Optimism Index fell 0.6 points in May to 95.3, remaining below its 52-year average of 98.0. At the same time, the organization's Uncertainty Index climbed three points to 91, significantly above its historical average of 68, reflecting growing concern among business owners about future economic conditions.

Perhaps most concerning, job openings among small businesses declined to 29 percent in May—the lowest level recorded since May 2020, when the nation was grappling with the economic fallout of the COVID-19 pandemic. The decline signals a notable cooling in labor demand as business owners scale back expansion plans and prepare for higher operating costs.

Small employers are increasingly confronting a paradoxical labor market. While labor quality concerns have fallen to a decade low, labor costs have surged, making them one of the most significant challenges facing business owners. Fourteen percent of owners identified labor costs as their single most important problem—the highest reading ever recorded in the survey—while only 13 percent cited labor quality as their primary concern.

The pressure is translating directly into hiring decisions. Only 9% of small business owners reported plans to create new jobs over the next three months, a 4-point decline from April and the lowest level in six years.

"Concerns about rising labor costs increased significantly to the highest reading in the survey's history," said NFIB Chief Economist Bill Dunkelberg. "Small business owners are facing mounting pressure to retain workers, and many firms are navigating costly new state mandates. While current conditions restrict Main Street's already-thin profit margins, compensation measures remain steady for now."

In Alabama, small-business leaders say the national trends are being felt locally.

"Running a small business is hard in the best of times," said Rosemary Elebash, Alabama State Director for the NFIB. "And rising fuel costs and labor shortages are making it even harder for owners to plan ahead and grow their businesses."

Beyond labor concerns, inflation and supply chain challenges continue to complicate business operations. According to the report, 70 percent of small business owners experienced supply chain disruptions in May, a six-point increase from April. The increase comes as businesses continue adjusting to shifting trade policies, global shipping constraints, and geopolitical instability affecting international commerce.

Price pressures are also accelerating. 36% of business owners reported raising average selling prices in May, a 6-point increase from the previous month. Meanwhile, 24 percent indicated plans to increase prices in the coming months, marking the highest level since July 2022.

For consumers, those figures could translate into higher costs for everyday goods and services. For business owners, the challenge is balancing rising expenses against increasingly fragile customer demand.

Inflation remains a major concern across Main Street. Eighteen percent of owners identified inflation as the most important issue facing their business in May, up two points from April and ranking second only to taxes among top concerns.

The report arrives at a pivotal moment for the U.S. economy. While major stock indexes have remained resilient amid investor enthusiasm surrounding artificial intelligence and technology investments, small-business owners appear increasingly concerned about conditions on the ground. Economists often view small businesses as a leading indicator of broader economic health because they account for nearly half of private-sector employment nationwide.

The divergence between Wall Street optimism and Main Street caution highlights growing questions about the sustainability of economic growth heading into the second half of the year. With labor costs rising, supply chains under strain, and inflationary pressures resurfacing, many business owners appear to be preparing for a more challenging operating environment.

Whether those concerns evolve into a broader economic slowdown remains uncertain. What is clear, however, is that America's small businesses—the backbone of the nation's economy—are becoming increasingly wary of the road ahead.

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-- By Robert Douglass

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