Business and household confidence ebbing and flowing with tariff announcements and drama

With the sharp reduction of tariff rates between the US and China off the punitive levels seen in April, and post the April 9th reciprocal tariff pause with everyone else, the May NFIB Small Business Optimism index rebounded by 3 pts to 98.8 after four months of declines.

Post the jobs data last week, particularly the ADP report which showed a reduction in small business payrolls, Plans to Hire fell 1 pt after rising by a like amount last month. At 12%, it matches the lowest since March 2024. Job openings held at the least since January 2021. The compensation components were mixed as the current outlook saw a 7 pt drop but future plans for comp rose 3 pts. Capital spending plans rose 4 pts to 22% but just getting back to around the 6 month average of 21%. Plans to Increase Inventory remained below zero at -1%.

Those seeing Higher Selling Prices were unchanged m/o/m at 25% which is about in line with the 6 month average of 26%, so no real response yet to higher costs due to tariffs or margins are getting hurt instead. The earnings picture weakened by 5 pts after gaining 7 last month. That said, three month expectations for selling prices rose 3 pts to 31%, the highest since March 2024.

Four percent said "their last loan was harder to get than in previous attempts, down 1 point from April." The average rate paid on a loan was 8.7%, down .2 pts m/o/m.

As for the expectation pieces of the survey, those that Expect a Better Economy rose 10 pts after dropping by a combined 22 pts in the two prior months in response to the tariff ramp up. Those that Expect Higher Sales rose 11 pts after declining by 15 over the past two months. Those saying it's a Good Time to Expand though only rose 1 pt after dropping 3 over the previous two months.

Of note too, taxes are now the number one small business problem at 18% and the last time this was the case was in December 2020. Labor quality is number two at 16% and inflation is 3^rd at 14%.

Also, "When asked to rate the overall health of their business, 14% reported excellent (up one point), and 55% reported good (down one point). Twenty-eight percent reported the health of their business was fair (up one point) and 4% reported poor (unchanged)."