Small businesses are seeing one labor squeeze ease, but payroll costs take its place

Small businesses are reporting a little less trouble finding workers, even as the cost of keeping payrolls staffed becomes a sharper problem. That shift matters for Main Street owners because the hiring bottleneck may be easing, but the relief is conditional: margins are still being squeezed by wages, fuel and planned price increases.

The National Federation of Independent Business said June 9 that its Small Business Optimism Index fell 0.6 points in May to 95.3, still below its 52-year average of 98.0. Inside the weaker headline, however, the labor details changed in a way owners and jobseekers should read carefully: 29% of owners reported job openings they could not fill, down 5 points from April and the lowest share since May 2020.

The practical takeaway for owners

For a small employer, the useful news is not that hiring has suddenly become easy. It is that the applicant pipeline may be less jammed than it was when labor quality dominated owner concerns. If a business postponed a search because every opening felt impossible, May's data are a reason to refresh job postings, tighten screening, and test whether local applicant quality has improved before assuming the old labor shortage still applies.

The second-layer insight is that Main Street's labor problem is changing shape. During the shortage years, many owners could not find enough workers at almost any price. In May, NFIB's survey suggests more owners are worried about what labor costs do to margins than about whether any applicants exist. That is a different operating problem: less about recruiting panic, more about scheduling, retention, productivity and pricing discipline.

Why this is not a clean hiring boom

The caveat is large. NFIB also said a seasonally adjusted net 9% of owners plan to create new jobs in the next three months, down 4 points from April and the lowest reading since May 2020. Its jobs report said that hiring plans are now below their historical average of a net 11%. In plain terms, small firms may be having fewer unfilled openings partly because they are becoming more cautious about adding people.

TD Economics made a similar point in its June 9 readout, noting that hiring plans and unfilled openings both fell sharply while labor-cost concern overtook labor-quality concern. The firm said the survey points to small and medium-sized businesses making a smaller contribution to job growth in the months ahead. That is the main limit on the good news for jobseekers: less frantic hiring can mean fewer easy openings, even if the openings that remain are less impossible to fill.

The broader labor market is still adding jobs. The Bureau of Labor Statistics said total nonfarm payroll employment increased by 172,000 in May and the unemployment rate held at 4.3%. But the same release showed employment was little changed in several Main Street-adjacent sectors including construction, manufacturing, retail trade, wholesale trade and other services, while average hourly earnings were up 3.4% over the year. That mix helps explain why small firms can face both a less frantic applicant market and a more expensive payroll.

Costs are still pushing through the system

The labor shift is happening while other costs are flaring. NFIB said 18% of owners cited inflation as their single most important business problem, the highest reading since December 2024. It also said a net 36% of owners raised average selling prices in May, the highest reading since March 2023, while a net 34% planned to increase prices, the highest since July 2022.

Fuel is a particular Main Street problem because small firms often have less room than large chains to absorb delivery, service-call or commuting-related cost swings. The Associated Press reported this week that rising gas prices helped push U.S. inflation to 4.2% in May, while BLS data showed gasoline prices rose 7.0% over the month and energy prices were up 23.5% from a year earlier. NFIB's own commentary said unpredictable fuel-price hikes are harder for small businesses to pass on to customers than for larger competitors.

What readers should watch next

The next checkpoint is whether June and July confirm that labor availability is improving or show that owners are simply pulling back. Watch three NFIB measures together: unfilled openings, hiring plans and the split between labor quality and labor cost as the top problem. A healthy version of this story would show fewer labor-quality complaints without a deeper collapse in hiring plans.

For owners, the practical question is whether a role truly needs a new hire, a raise, a schedule redesign or a productivity fix. For workers, the signal is more mixed: some businesses may be easier to approach because they are less overwhelmed by applicant scarcity, but owners with record labor-cost concern may be slower to add headcount or quicker to demand clear productivity from each new hire.

That makes May's report a modest stabilizing signal, not a celebration. Main Street may be moving out of the most frustrating labor-shortage phase, but the budget math has not loosened. The firms that benefit most will be the ones that use the hiring breather to reduce churn, train better, and protect margins without leaning too heavily on customers who are already sensitive to price increases.