US small business sentiment improves in May, but uncertainty rising

Zawya

a day ago

U.S. small-business confidence improved in May, likely because of a de-escalation in trade tensions between Washington and China, though uncertainty over the outlook mounted amid worries over the fate of President Donald Trump's tax-cut agenda.
The National Federation of Independent Business said on Tuesday its Small Business Optimism Index increased three points to 98.8 last month, rising for the first time since December.
The trade truce resulted in the Trump administration slashing tariffs on Chinese goods to 30% from 145% through early August. That probably led small business owners to anticipate higher sales, accounting for most of the increase in the index. But the survey's uncertainty index rose two points to 94.
"Congress hasn't passed the big beautiful bill yet, and Trump is still messing with tariffs, the uncertainty level is rising," said NFIB Chief Economist Bill Dunkelberg.
"While tariffs might be a bumpy road while countries negotiate trade deals, Congress can do their part by passing the BBB sooner rather than later to take that piece of uncertainty off the table." Trump's so-called big beautiful bill squeaked through the U.S. House of Representatives last month, but is facing stiff opposition from conservative Republicans in the Senate amid concerns that it would significantly add to the nation's already large debt. It is at the center of a feud between Trump and tech billionaire Elon Musk.
The share of small businesses expecting higher inflation-adjusted sales volumes jumped 11 points to 10%, accounting for most of the improvement in the Optimism Index.
There was also a big rise in the proportion expecting better business conditions, though the share reporting taxes as their single most important problem increased.
The share viewing current inventory as "too low" was the highest since August 2022. That, together with lengthening delivery times of inputs to factories, suggests shortages of some goods and price hikes could be looming.
The survey also confirmed the labor market was slowing. The share of owners reporting labor quality was the single most important problem for their business dropped close to levels last seen in the spring of 2020. The share raising compensation was the lowest since early 2021. "Overall, the economy will continue to stumble along until the major sources of uncertainty are resolved," said Dunkelberg. "It's hard to steer a ship in the fog."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)