The latest NFIB Jobs Report reveals a nuanced picture of the current job market for small businesses. While employment figures show little change, they do hint at deeper issues small business owners must navigate.

According to the report, the Small Business Employment Index registered a stagnant 100.3 in May, a slight slip from April’s 100.4. This marks three consecutive months of decline, and the current index reading remains below the 2025 average of 101.2 but above the historical average of 100.0. For small business owners, these figures indicate a challenging employment landscape that may require strategic adjustments.

In May, 29% of small business owners reported job openings they could not fill, a significant decline from 34% in April. This figure represents the lowest level since May 2020, showing some relief in the labor market. Among these, 27% sought skilled workers—down 2 points—and 9% looked for unskilled labor—down 4 points.

“Concerns about rising labor costs increased significantly to the highest reading in the survey’s history,” said NFIB Chief Economist Bill Dunkelberg. He noted that small business owners face increasing pressure to retain their current workforce, with many firms navigating costly new state mandates. This situation puts additional strain on already tight profit margins.

Currently, only a net 9% of owners plan to create new jobs in the next three months, a drop of 4 points from April. This rate is now below the historical average of a net 11%. However, 55% of owners reported actively hiring or attempting to hire in May, an increase of 2 points from April.

Despite the uptick in hiring intentions, many small business owners are grappling with the quality of applicants. Approximately 46% (representing 84% of those hiring) reported having few or no qualified applicants for their open positions. The numbers align with broader concerns about labor quality, which, while reported as the single most important problem by only 13% of owners in May, still indicates an ongoing challenge.

Intriguingly, as job availability has become more challenging, labor costs have surged. A record 14% of business owners identified labor costs as their primary concern, a marked increase of 5 points from April. This indicates that while the quality of labor issues may be easing, the costs associated with retaining and hiring staff are escalating, pressing owners to make tough financial decisions.

“While unfilled job openings and hiring plans declined to six-year lows, compensation measures remained largely unchanged,” said Dunkelberg. Indeed, a net 31% of small business owners reported raising compensation in May, an increase of 1 point from April. Meanwhile, a net 18% plan to raise compensation over the next three months, maintaining the status quo.

For small business owners, these insights underscore the necessity of strategic workforce planning. As the pool of potential hires becomes smaller, coupled with rising operational costs, small business owners may need to consider proactive measures to attract talent.

Implementing competitive compensation and exploring flexible work arrangements could make jobs more appealing. Additionally, investing in employee development could improve workers’ skills, thus enhancing the overall quality of the talent pool.

However, the challenges are twofold; the rising labor costs are a reality that will not easily dissipate. Owners may need to reassess their pricing strategies to accommodate increased operational costs without alienating their customer base.

The NFIB Jobs Report serves as a crucial barometer for small business owners, highlighting a balancing act between managing costs and attracting talent. For more detailed insights, the entire report is available here.

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This article, “Small Business Hiring Plans Hit Six-Year Low Amid Labor Cost Worries” was first published on Small Business Trends