Small Business Optimism Bounces Back to 3-Month High in May: NFIB

Taxes have become the top issue for small businesses for the first time in nearly five years.

Deborah Locker, an employee at Christian Family Thrift Store in Phoenix goes over prices on May 1, 2025. Allan Stein/The Epoch Times

Optimism among U.S. small businesses rebounded in May as trade jitters dissipated.

The National Federation of Independent Business (NFIB) Small Business Optimism Index climbed to 98.8 in May, up from 95.8 in April. This also exceeded the consensus estimate of 95.9.

Despite the better-than-expected increase in optimism, uncertainty persists among small-business owners, Bill Dunkelberg, the group’s chief economist, said in a statement.

“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,” Dunkelberg said.

The net share of owners expecting a better business environment and higher sales volumes rose by 10 and 11 points, respectively.

For the first time since December 2020, taxes were ranked as the single most important problem facing small-business owners. Small-business owners also identified labor quality, inflation, and employment costs as top problems.

This comes as the NFIB leadership endorsed President Donald Trump’s One Big Beautiful Bill Act, calling it “one of the most pro-small business pieces of legislation in recent history.”

Brad Close, NFIB president, said the bill prevents a tax hike on more than 33 million small-business owners.

The legislation boosts the small-business tax deduction to 23 percent from 20 percent and makes it permanent. Additionally, the bill bolsters the small-business estate tax exemption and lifts the small-business expensing limit.

Price Pressures Facing Small Businesses

In a sign that consumers could face higher costs the next time they visit a mom-and-pop shop, a net 31 percent said they plan to hike prices, and a net 38 percent reported higher average prices, according to the NFIB survey.

In recent weeks, a wide array of reports have been published with mixed findings regarding the extent to which companies have raised their prices in response to the president’s tariffs.

The Federal Reserve’s Beige Book—a periodic summary of economic conditions across the central bank’s 12 districts—reported prices increasing “at a moderate pace.”

“There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial,” the latest report said. “All District reports indicated that higher tariff rates were putting upward pressure on costs and prices.”

In addition, the New York Federal Reserve’s May Empire State Manufacturing Survey and Business Leaders Survey found that 45 percent of service firms passed the full tariff-induced cost to customers by raising their prices.

A promotional price label at a Smart&Final store in San Diego on March 24, 2025. Jane Yang/The Epoch Times

According to a May survey by insurer Allianz, more than half (54 percent) of U.S. companies plan to raise prices to manage tariff-driven costs.

“Despite recent positive developments, price hikes are likely to remain the go-to strategy globally to counter tariff impacts,” the Allianz Trade Global Survey report stated.

Stephen Kates, a financial analyst at Bankrate, said the on-again, off-again tariff policies might have “diluted the direct and immediate impact on consumers, but only so far.”

“Large businesses have been able to lean on suppliers and pull other levers to keep prices and profit margins steady. However, many businesses can only hold off for so long,” Kates said in a statement emailed to The Epoch Times.

To date, potential adverse effects from tariffs have not appeared in the hard business or consumer inflation figures.

Annual inflation has slowed sharply to slightly above the Federal Reserve’s 2 percent target. Producer prices contracted in April, and import and export prices were flat.

This week will present an update to the inflation picture as the May consumer price index (CPI) and producer price index are released.

The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model projects that the annual inflation rate will tick up to 2.4 percent from 2.3 percent. The consensus forecast indicates a modest 0.2 percent increase in wholesale prices.

In May, a record $23 billion in tariff revenues was collected by the U.S. government, and “someone paid those bills,” according to Siebert Financial Chief Investment Officer Mark Malek.

“The question is, was it you and me, or was it the importers ... or both? Well, if you and I paid them, it should show up in the CPI or PCE [Personal Consumption Expenditure] numbers,” Malek said in a note emailed to The Epoch Times.

One of the reasons the Federal Reserve has not cut interest rates since December 2024 despite the slowdown in inflation is that it is waiting to determine if tariffs are causing temporary or long-term price adjustments. With robust economic activity and solid labor market conditions, monetary policymakers have signaled they can afford to be patient before taking policy action.

Some price pressures could form in the next batch of inflation reports, Malek notes.

“Based on the complex collection of tariffs in effect today, we would expect aggregates such as autos, apparel, and foods to show initial signs of tariff-driven inflation,” he said.