How Retail Weakness Is Skewing Small Business Optimism Data
It's not all gray skies. For now, the dark clouds are mostly over retail. (Photo by)
Small business optimism looks weak, but worries are most pronounced among retailers.
The April 2025 Small Business Optimism Index came in at 95.8, below the 51-year average of 98. The index, published monthly by the National Federation of Independent Business (NFIB), fell across all sectors tracked in the report: construction, manufacturing, retail, and services. The latest survey reflects responses collected during the first two weeks of April and captures small business owner expectations for hiring, investment, sales, and the broader economy. The overall optimism reading was down 1.6 percentage points from March.
Retail business owners were the least optimistic, with an index reading of 93.7, according to a supplementary report published by NFIB on May 27. That is 6.4 points below January and the only sector to come in below the overall long-term average. Retailers also reported the weakest hiring plans, the most inventory complaints, and the most widespread supply chain disruptions. Many, if not all, of these concerns are tied to President Trump's tariffs on Chinese goods, which were announced on April 2.
Only 10% of retail owners plan to hire, compared to 13% across all small businesses. Seventy-six percent of retailers say supply chain issues are affecting their business. Fourteen percent say their inventories are too low, the lowest of any sector. Even with those headwinds, a net 7% expect real sales to rise, which is better than the overall small business outlook.
Construction, on the other hand, remains the most confident sector. Its index reading was 100.9, down 3.9 points from January but still the highest among all industries. More than half of construction businesses report unfilled job openings, and 20% plan to hire in the next three months. Labor remains the industry's top concern. Nearly a third of construction owners said finding qualified workers is their most pressing issue. That shortage is likely being made worse by the Trump Administration's immigration crackdown. About one in three construction workers is an immigrant, and nearly half of painters and drywall installers are foreign born.
Manufacturing and services also declined but stayed above the overall long-term average. Manufacturing optimism fell the most of any industry, dropping 6.8 points. This came despite the Trump Administration's push to onshore production and strengthen domestic supply chains. Even so, manufacturers reported the strongest earnings trends and the best expectations for future sales. In the services sector, hiring plans actually increased slightly, and expectations for the economy were the second highest of any group.
Despite the broader decline in optimism, 69% of all small business owners rated their business health as excellent or good. That was true across every industry. Finance (74%) led the way. Transportation came in last (just 60%).
Tariffs may be weighing on confidence, but outside of retail, most small businesses still see a path forward. While the overall index is down, three of the four major sectors remain more optimistic than the historical trend.
That said, retail's struggles aren't a sideshow. When including direct and indirect employment, such as supply chain workers, retail employs about 55 million Americans and contributes $2.2 trillion to the country's annual gross domestic product, according to the National Retail Federation. Even if tariffs are hitting retailers hardest for now, the ripple effects could spread quickly. A slowdown in retail hiring, investment, and consumer spending could drag down broader economic momentum in the months ahead.
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