Small Business Capital Spending Plans Hit a 17-Year Low
The NFIB's May 2026 Small Business Optimism report reveals that only 16% of small business owners plan capital outlays in the next six months — the lowest reading since March 2009, during the depths of the financial crisis. With inflation still running hot, a new Fed chair signaling a possible rate hike, and uncertainty at near-record levels, Main Street has quietly shifted into a defensive crouch.
What the NFIB Measures — and Why It Matters
Every month, the National Federation of Independent Business (NFIB) surveys roughly 620 small business owners across the country on ten economic indicators: sales expectations, hiring plans, pricing, capital spending, credit conditions, and more. The resulting Small Business Optimism Index is one of the most direct reads available on how people who actually run businesses — not Wall Street analysts — feel about the economy.
A reading above the 52-year average of 98.0 signals expansion-minded owners. A reading below it, especially paired with a surging Uncertainty Index, signals owners who are pulling back. May's reading of 95.3 is the third consecutive month below the long-run average, and the trend is pointing in the wrong direction.
NFIB Chief Economist Bill Dunkelberg put it plainly: "Uncertainty is the enemy of growth and investment, and it is high." The Uncertainty Index clocked in at 91 — nearly a full standard deviation above its historical average of 68. When owners don't know what's coming next, they stop spending money they don't have to spend.
The Capital Spending Number That Should Alarm You
The most striking data point in the May report is planned capital outlays: 16%. That's the share of small business owners who say they intend to make a significant capital expenditure — equipment, vehicles, technology, build-outs — in the next six months. It's down 1 point from April, and it's the lowest figure recorded since March 2009, when the U.S. economy was still in freefall after the financial crisis.
To put that in context: during the 2021–2022 recovery, this number was routinely above 25%. Small businesses were expanding, buying equipment, investing in their future. Today that confidence has evaporated. Owners are choosing to hold cash, delay purchases, and wait for clearer skies.
Why this matters for you: Capital spending drives future revenue. When small businesses collectively pause investment, it signals they don't expect strong demand in the next 6–12 months — and that caution tends to become self-fulfilling. If your competitors are pulling back too, that's either a threat or an opportunity depending on your cash position.
Inflation: Owners Are Still Raising Prices — Fast
Here's the paradox: even as investment freezes up, small business owners are still raising prices aggressively. A net 36% of owners reported raising their average selling prices in May — the highest reading since March 2023, when inflation was at its peak post-pandemic surge.
This is a sign that cost pressures remain severe. Energy costs — which have jumped sharply since the conflict in Iran escalated — are flowing through to nearly every input a small business touches: fuel, shipping, utilities, plastic packaging, chemicals. Owners are passing those costs on to customers not because demand is strong, but because their own margins are being squeezed.
The official numbers tell the same story. CPI inflation is running at 4.17% year-over-year as of the most recent reading, more than double the Federal Reserve's 2% target. The Fed's own updated projections now see PCE inflation finishing 2026 at 3.6% — up sharply from the 2.7% they projected just three months ago in March.
What this means for pricing: If 36% of your peers are raising prices, customers are already being conditioned to expect increases. Don't be the last business in your market to adjust — but be transparent about why. Customers respond better to honest cost explanations than to unexplained sticker shock.
The Fed Just Made Things More Complicated
On June 17, the Federal Reserve voted 12-0 to hold the federal funds rate at 3.50–3.75%. That was the expected outcome — what caught markets off guard was the new "dot plot," the grid showing where Fed officials expect rates to go.
Under new Chair Kevin Warsh — who replaced Jerome Powell earlier this year — the dot plot shifted dramatically. The median rate projection for end-of-2026 moved up to 3.8%, from 3.4% in March. More significantly, 9 of 18 voting members now expect at least one rate hike before year-end, with 6 projecting two hikes. Rate cuts, which many had expected going into 2026, have been pushed to 2027 at the earliest.
Warsh also overhauled how the Fed communicates: he shortened the policy statement, stripped out forward guidance language, and announced five internal task forces to rethink the Fed's communications, balance sheet, data reliance, productivity framework, and inflation targeting approach. It's the most significant shift in Fed posture in years — and it introduces a new layer of unpredictability for anyone trying to plan around borrowing costs.
Bottom line on rates: Don't count on relief in 2026. The cost of borrowing is staying high — and may go higher. Variable-rate loans, lines of credit, and credit cards tied to the prime rate will all be affected if the Fed hikes again. Plan accordingly.
The Hiring Picture: Less Pressure, But Not for Good Reasons
One number in the NFIB report looks like good news on the surface: the share of owners reporting job openings they can't fill dropped to 29% in May — the lowest level since May 2020, down 5 points from April. Less hiring pressure sounds like relief for small businesses that have spent years paying up for workers.
But the reason matters. This isn't a sign that the labor market is working better — it's a sign that small businesses are pulling back on hiring plans. Continuing jobless claims are rising (they hit a near three-month high last week at 1.81 million), which means workers are staying unemployed longer. And with capital spending plans at a 17-year low, there simply aren't as many new positions being created to fill.
The NFIB Employment Index registered 100.3 in May, below the 2025 average of 101.2. Flat, but the direction of travel is downward. If your business has been struggling to find workers, conditions may ease in the months ahead — but it will be because the broader economy is cooling, not because the fundamentals have improved.
What Small Business Owners Should Do Right Now
The data paints a clear picture: this is a moment to be strategic, not panicked. Here's a practical checklist based on what the numbers are telling us:
- Audit your variable-rate debt. With a Fed rate hike possible before year-end, any loan or credit line tied to prime rate could get more expensive. Know your exposure and consider locking in fixed rates on anything you plan to hold for more than 12 months.
- Delay discretionary capital spending — but don't freeze all of it. The 16% planning outlays stat shows most owners are hitting pause. If a purchase is truly optional, wait. But if equipment or technology would meaningfully cut costs or boost capacity, the competitive window may actually be better right now — vendors are hungrier for business.
- Review your pricing at least quarterly. With 36% of owners raising prices, you're not alone in adjusting. Build regular pricing reviews into your calendar so you're not playing catch-up every time input costs spike.
- Build a 90-day cash buffer if you don't have one. Uncertainty at 91 (vs. a historical avg of 68) means the environment can shift quickly. Cash on hand is your best hedge against a downturn in demand or a sudden jump in costs.
- Watch the July Fed meeting closely. The next FOMC decision comes July 29. Given how many members are now leaning toward a hike, any data between now and then — especially CPI and jobs — will move markets and potentially your borrowing costs.
The Big Picture
The May 2026 NFIB report is a snapshot of a Main Street that feels stuck. Inflation is still biting. Borrowing costs are still high. The new Fed chair is still an unknown quantity. Energy prices are being pushed up by events overseas that no business owner can control. And now the prospect of rate hikes — not cuts — is back on the table for 2026.
The fact that capital spending plans are at their lowest since the financial crisis isn't a prediction of recession, but it is a warning light. Small businesses are the backbone of U.S. job creation and economic growth. When they stop investing, the ripple effects take months to show up in the official data — but they do show up. Watch this number closely as summer progresses.
The next NFIB report covering June data will be released in early July. If the Uncertainty Index remains elevated and capital spending plans stay depressed, the second half of 2026 could be a challenging stretch for Main Street.
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