U.S. small business owners continued to be less optimistic about the state of the economy in May, with many citing stubborn inflation as the reason for the negative sentiment, according to a new report released Tuesday. The findings paint a challenging – if lately familiar – backdrop going into Wednesday’s Federal Open Market Committee meeting when policymakers will decide what to do about interest rates.
The National Federation of Independent Business’ Small Business Optimism Index reached its highest reading of 2024 in May at 90.5 – a 0.8-point increase – yet it’s still the 29th straight month the figure came in below the historical average of 98. Meanwhile, the group’s Uncertainty Index rose nine points to 85, representing its highest level since November 2020, the report found.
Twenty-two percent of owners surveyed cited inflation as their biggest challenge to operating their business, according to the NFIB, which began assembling economic trends data in 1973 and has issued its monthly surveys since 1986.
In late morning trading Wednesday, gold was up $2.59 to $2,312 an ounce, while silver dipped $0.57 to $29.14 per ounce.
“The small business sector is responsible for the production of over 40% of GDP and employment, a crucial portion of the economy,” NFIB chief economist Bill Dunkelberg said in a statement issued with the data. “But for 29 consecutive months, small business owners have expressed historically low optimism and their views about future business conditions are at the worst levels seen in 50 years. Small business owners need relief as inflation has not eased much on Main Street.”
Dunkelberg echoed recent investor sentiment that the economy is at a tipping point, as elevated interest rates and a dicey labor market have established a stronger foothold than hoped.
Investors are looking to the Fed for a roadmap on interest rate cuts out of its Wednesday meeting and have pinned their hopes on seeing the first trim in September. But a string of economic data released in the past week might have jeopardized that timeline.
