Recent data reveals a significant cooling in hiring intentions among US small businesses. According to the National Federation of Independent Business (NFIB), the proportion of small businesses planning to hire new employees or reporting difficulty in filling job openings fell in May to its lowest level in six years. The NFIB stated that, after seasonal adjustments, 9% of small business owners plan to create new jobs in the next three months, a drop of 4 percentage points from April. Concurrently, the share of businesses reporting unfilled job openings that are hard to fill fell 5 points to 29%. Both metrics have reached their lowest levels since May 2020.
This decline in small business hiring plans presents a stark contrast to data released earlier in the week by the Bureau of Labor Statistics (BLS). The BLS report showed that US job openings in April surged to their highest level in nearly two years, with the smallest firms (those with fewer than 10 employees) posting the largest single-month increase in open positions on record.
The NFIB's Thursday data suggests that rising energy costs and economic uncertainty, particularly against the backdrop of ongoing Middle East conflicts, may be dampening small business expansion plans. While the proportion of owners citing "labor quality" as their top problem declined in May, those listing "labor costs" as their primary concern rose to a survey-record high. However, indicators related to compensation remained relatively stable, with the share of businesses that have raised or plan to raise wages holding steady.
"More small business owners are feeling pressure to retain employees, and many are dealing with costly new state-level regulations," said NFIB Chief Economist Bill Dunkelberg in a statement. "The current environment is squeezing already thin profit margins, yet compensation indicators remain relatively stable for now."
Given that small businesses employ nearly half of the US private-sector workforce, their hiring plans offer a partial, though not definitive, reflection of broader labor market conditions.
Adding to the mixed signals, the Automatic Data Processing Inc (ADP) employment report, often seen as a precursor to the official government data, showed the US private sector added 122,000 jobs in May. This figure surpassed the consensus economist estimate of 120,000 and marked the highest reading since January 2025, suggesting the labor market may be gathering momentum. Conversely, data released Thursday showed initial jobless claims for the week ending May 30 rose by 13,000 to 225,000, exceeding the forecast of 215,000 and hitting the highest level since February. The data covered the period including Memorial Day and the start of summer breaks for some schools, which may have contributed to volatility. The four-week moving average, which smooths out weekly fluctuations, also rose to 214,750, its highest since February.
The state of the US jobs market is a critical factor for the Federal Reserve's policy decisions. The highly anticipated May non-farm payrolls report is due for release later today. Market expectations are for job gains of approximately 85,000, with the unemployment rate likely holding steady. A reading in line with forecasts would represent the strongest three-month run of job growth in over a year. Continued labor market strength would bolster the Fed's resolve to maintain its restrictive monetary policy stance, even as persistent price pressures present additional concerns for policymakers.
Following Wednesday's stronger-than-expected ADP report, some analysts noted it could increase the probability of a robust official jobs number on Friday, reinforcing the narrative of "higher for longer" interest rates. The significance of the May payrolls data extends beyond the headline job creation figure. Markets will scrutinize it to test the Fed's reaction function—specifically, whether the central bank will prioritize ongoing employment resilience or remain more vigilant against potential inflationary rebounds in an environment where price pressures persist and the job market has not yet shown clear signs of weakening.
Markets are currently overwhelmingly betting that the Fed will hold its benchmark interest rate steady in the 3.5% to 3.75% range at its upcoming June 16-17 policy meeting. According to the CME FedWatch Tool, the probability of the Fed standing pat in June is as high as 96.4%, with only an 8.2% chance priced in for a 25-basis-point rate hike in July.
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