Small Business Confidence Slides as Investment Plans Slip to 5-Year Low

The NFIB’s small business survey shows elevated uncertainty over taxes, labor quality, and trade despite easing inflation.

Shoppers in New York City on Nov. 15, 2024. Samira Bouaou/The Epoch Times

Small business optimism continued to decline in April, with fewer owners expecting business conditions to improve and investment plans falling to their lowest level since the early days of the pandemic, according to new survey data from the National Federation of Independent Business (NFIB).

The NFIB’s Small Business Optimism Index dropped 1.6 points to 95.8, marking the fourth straight month of declines and the second month in a row below the 51-year average of 98, according to the NFIB report, published on May 13.

The report paints a picture of a Main Street economy gripped by uncertainty, as inflationary pressures ease but investment, hiring, and expansion plans remain subdued amid lingering concerns over labor quality, taxes, and shifting trade policy.

“Uncertainty continues to be a major impediment for small business owners in operating their business in April, affecting everything from hiring plans to investment decisions,” NFIB chief economist Bill Dunkelberg said in a statement. “While owners are still trying to fill a high number of current job openings, their outlook on business conditions is less supportive of future business investments.”

Eighteen percent of owners said they plan capital outlays in the next six months, down three points from March and the lowest share since April 2020, when COVID-19 lockdowns froze much of the economy. The decline in planned investment comes even as some cost pressures begin to recede, suggesting that broader uncertainty, not just inflation, is holding businesses back. Labor quality remained the top concern for the third straight month, followed closely by taxes and government red tape.

“Renewal of the Tax Cuts and Jobs Act (TCJA) remains a major source of uncertainty,” NFIB stated in comments on the survey findings. “Nearly 1 in 10 owners view government regulations and red tape as their top business problem, a form of taxation in which the government directs the expenditure of resources for compliance.”

One day before the NFIB report was released, the House Ways and Means Committee unveiled its long-awaited tax package, proposing more than $4 trillion in tax cuts and $1.5 trillion in spending reductions over the next decade. Central to the plan is the permanent extension of the lower income tax rates enacted under the TCJA. In a boost for small businesses, the bill also seeks to expand the deduction for unincorporated businesses, raising the cap on qualified business income deductions from 20 percent to 22 percent.

Meanwhile, inflation appears to be fading as the most urgent issue for small firms, per the NFIB report. Fourteen percent of owners identified inflation as their single most important problem—the lowest reading in over three years. A net 25 percent reported raising selling prices in April, down from 26 percent in March, while 28 percent expect to raise prices in the next three months, down two points from the prior month.

“Actual inflation is low, although not quite at the Fed’s goal of 2 percent,” NBIF said in comments on the report. “But prices are still rising, and what owners want to see is a reversal of the cumulative 20 percent increase in prices under the Biden administration.”

The NFIB report came on the same day the latest Consumer Price Index (CPI) data showed U.S. inflation easing to its lowest level in over four years. According to the Bureau of Labor Statistics, the annual inflation rate fell to 2.3 percent in April from 2.4 percent in March, marking a third straight month of slowdown and the lowest reading since February 2021. Core inflation, which excludes food and energy, held steady at 2.8 percent.

This cooling of price pressures, paired with slowing shelter costs and easing tariff risks, could clear the way for Federal Reserve rate cuts later in the year, according to ING analysts.

“The housing and services story can help to mitigate the inflation threat from tariffs, which itself is less of a concern in the wake of the recent cooling of tensions with China,” ING analysts wrote in a note.

The United States and China have agreed to a 90-day deal to significantly reduce reciprocal tariffs as part of an effort to ease trade tensions, officials from both countries announced on May 12. Under the agreement, Washington will lower its tariff rate on Chinese goods from 145 percent to 30 percent, while Beijing will cut its rate on U.S. imports from 125 percent to 10 percent and lift its countermeasures.

The temporary truce follows talks in Switzerland amid ongoing disputes over intellectual property theft by Chinese actors, ongoing trade imbalances that disfavor the United States, and China-made chemical precursors used to make the deadly drug fentanyl that continues to pour into U.S. communities.

“While the de-escalation of trade tensions is helpful for growth, it also makes it more likely that inflation will be less of an issue for the Federal Reserve and the scope for Fed rate cuts remains,” ING analysts wrote, while predicting that the Fed will deliver a 25-basis point cut at its September meeting.

The NFIB noted that any tariff relief will be a welcome development for small businesses because, while few of them export goods, many rely heavily on imported inputs.

Despite easing inflation and a temporary trade truce, small business sentiment remains cautious. The NFIB’s Uncertainty Index dipped to 92 in April, down four points from March, but remained well above its historical average of 68.

“Overall, the economy is not in bad shape for now, time will tell what happens next,” NFIB said in commentary. “For the next few months, owners will be watching the news to monitor progress toward passage of ‘one big beautiful bill.’”

The Ways and Means Committee was set to begin marking up the bill on Tuesday, with small business owners likely to track developments closely in terms of tax policy, which was the top problem in the NFIB survey for 16 percent of respondents.