U.S. small-business confidence improved in May, likely because of a de-escalation in trade tensions between Washington and China, though uncertainty over the outlook mounted amid worries over the fate of President Donald Trump's tax-cut agenda.
The National Federation of Independent Business said Tuesday its Small Business Optimism Index increased three points to 98.8 last month, rising for the first time since December.
The trade truce resulted in the Trump administration slashing tariffs on Chinese goods to 30% from 145% through early August. That probably led small business owners to anticipate higher sales, accounting for most of the increase in the index. But the survey's uncertainty index rose two points to 94.
"Congress hasn't passed the big beautiful bill yet, and Trump is still messing with tariffs, the uncertainty level is rising," said NFIB Chief Economist Bill Dunkelberg.
"While tariffs might be a bumpy road while countries negotiate trade deals, Congress can do their part by passing the BBB sooner rather than later to take that piece of uncertainty off the table."
Trump's so-called big beautiful bill squeaked through the U.S. House of Representatives last month, but is facing stiff opposition from conservative Republicans in the Senate amid concerns that it would significantly add to the nation's already large debt. It is at the center of a feud between Trump and tech billionaire Elon Musk.
The share of small businesses expecting higher inflation-adjusted sales volumes jumped 11 points to 10%, accounting for most of the improvement in the Optimism Index.
There was also a big rise in the proportion expecting better business conditions, though the share reporting taxes as their single most important problem increased.
The share viewing current inventory as "too low" was the highest since August 2022. That, together with lengthening delivery times of inputs to factories, suggests shortages of some goods and price hikes could be looming.
A similar survey, by small business banking and loan provider OnDeck, found similar concerns over tariffs, prices, and supply chains. In its survey of 437 current customers conducted Feb. 17-25, top top concern, cited by 31%, was inflation's impact on their expenses.
The majority of these small businesses, 36.4%, said they were considering passing along higher costs to their customers. More than one-quarter, 26.5%, were worried tariffs might negatively impact their business finances.
That said, 92.7% said that a year from now, they expect their business results to improve, with 63.2% saying profits would be "moderately higher" and 29.5% saying "significantly higher."
A mere 3% said they were concerned over supply chain issues.
The National Federation of Independent Business survey also confirmed the labor market was slowing. The share of owners reporting labor quality was the single most important problem for their business dropped close to levels last seen in the spring of 2020.
The share raising compensation was the lowest since early 2021. "Overall, the economy will continue to stumble along until the major sources of uncertainty are resolved," said Dunkelberg. "It's hard to steer a ship in the fog."