US business sentiment eases on labour market fears - NFIB

Confidence among US small businesses weakened last month, driven lower by concerns about staff shortages and rising inflation.

The closely-watched National Federation of Independent Business Optimism Index declined by 0.2 points to reach 99.6 in May, from 99.8 in April. It was also below consensus, for around 101.0, and the first fall after three consecutive months of rises.

Bill Dunkelberg, chief economist at the NFIB, said: "If small business owners could hire more workers to take care of customers, sales would be higher and getting closer to pre-Covid levels.

"In addition, inflation on Main Street is rampant and small business owners are uncertain about future business conditions."

The overall index is an unweighted average of 10 components. Of those, five components improved, three declined and two were unchanged. The biggest drag came from the economic expectations index, which fell 11 points to net -26%.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "This is much more volatile than the other headline components, and it’s very sensitive to political developments, so it has likely been depressed by the administration’s plans to pay for infrastructure by reversing some of the Trump tax cuts.

"Elsewhere though the survey shows that the labour market is tight and still tightening.

"Selling prices rose four points, to a new high, but much of the recent increase is due to higher gasoline prices. Stripping out the impact of gas prices, we reckon that the survey is consistent with core CPI inflation at about 2%-2.5% next spring. That’s below our current 3% forecast, so we expect the NFIB prices index to rise further."

Lydia Boussour, senior US economist at Oxford Economics, said: "A rising share of small businesses are reporting labour shortages and passing along higher input costs and wages to customers. The net share of firms planning to raise prices surged to a record high, and the share of businesses having job openings they could not fill jumped to a record 48%.

"While the temporary supply bottlenecks caused by the economic reopening continue to dampen sentiment, these constraints should ease over time as the economy puts the pandemic behind it and supply gradually adjusts to demand."

Small businesses account for around half of all private sector jobs in the US.