#What is leading the pullback in small business hiring?
Small businesses, which form the backbone of approximately 60 million jobs in the United States, are now reducing their hiring rates at a level reminiscent of the early pandemic period. As indicated by the latest NFIB Jobs Report, the proportion of unfilled job openings has dropped to 29% in May. Additionally, net hiring plans have decreased to just 9%, marking the lowest figures since May 2020.
The decline in unfilled job openings has been abrupt. In April, 34% of small business owners reported having positions that remain unfilled. A month later, this figure dropped by five percentage points to 29%. Net hiring plans, calculated as the difference between businesses intending to hire and those planning layoffs, has fallen by four points from April's levels, now standing below the historical average of 11%.
Interestingly, despite this retreat in hiring intentions, 55% of small business owners in May reported having hired or attempted to hire, which is actually an increase from the previous month.
#How does the broader economic sentiment affect small businesses?
The declining sentiment among small business owners is highlighted by the NFIB Small Business Optimism Index, which registered at 95.9 in April. This figure remains below its average over the past 52 years. Although compensation trends have held steady, indicating that employers are focused on retaining their current workforce, the hesitation to expand hiring reflects broader economic uncertainties.
#What should investors take from this data?
The fact that net hiring plans stand at 9%—below the long-term average of 11%—is particularly noteworthy. Averages account for economic downturns, so being beneath the historical average signifies that small businesses are currently less willing to hire than they typically are across various business cycles, even during downturns.
In the coming months, the NFIB data will be crucial to monitor. Should the percentage of unfilled openings stabilize around 29% or start to recover, the May report may simply be an outlier. However, if the figure trends downward towards the low to mid-20s, it would shift the narrative from a mere softening to a more concerning state of the job market.