Small business sentiment improved in May for the first time in months

Small U.S. businesses are feeling slightly more confident, according to a Tuesday report.

The NFIB Small Business Optimism Index increased by 3 points in May to 98.8, slightly above the 51-year average of 98. It’s the first improvement in sentiment since December, with eight of the ten components that make up the index rising from April’s levels.

Improving sales expectations contributed most to the overall increase. Owners expecting to see a rise in sales was up 11 points, to a (seasonally adjusted) net of 10%. The second-largest rise was from owners who expect the economy to improve, rising by 10 points to a net 25%—a historically high reading.

While there were green shots of optimism, owners’ attitudes toward the the overall outlook of their businesses remained relatively unchanged from April. As part of the report, respondents were also asked to provide a rating for the health of their businesses: 14% reported “excellent” (up one point); 55% reported “good” (down one point); 28% reported “fair” (up one point); 4% reported “poor” (unchanged).

“Although optimism recovered slightly in May, uncertainty is still high among small business owners. While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth,” NFIB Chief Economist Bill Dunkelberg said in a statement.

There were two index components which trended down in May.

Those reporting positive profit trends were five points lower than in April. Meanwhile, owners planning to create new jobs in the next three months dropped 1 point, to a net 12% of owners.

There were early clues that President Donald Trump’s sweeping tariffs on imports into the U.S. could be stifling the supply of goods to small businesses. Those who viewed their inventory stocks as “too low” in May, was up 7 points from April. While that’s just a net of 1%, it’s the highest reading since August 2022, and the largest monthly increase for this component in the survey’s history.

This diminished supply of goods could become inflationary if persistent. It coincides with a stubbornly overheated labor market, which may also be keeping the U.S. inflation rate hovering around 2.3%, which is higher than the Federal Reserve’s 2% target. The NFIB’s May jobs report, published last week, found that about one-third of small business owners had job openings that they could not fill for the second consecutive month. Moreover, of the owners that were hiring, 86% reported few or no qualified applicants for the positions.