Small business confidence rises; costs, tariffs bite margins [WSJ/Vistage May 2025]

Much like the election inspired a burst of optimism last fall, last month’s tariff announcements and subsequent delays had a similar effect. Following April’s tariff-palooza, small business confidence has rebounded slightly in May. While the WSJ/Vistage Small Business CEO Confidence Index rose 5 points to 75.0 this month, it still sits among the lowest levels recorded in the past 2 years.

The whiplash effect of tariffs and the downstream effects of uncertainty have led to slowing demand, decreasing investments and stalled hiring plans for small businesses. After 4 months of declining confidence among small businesses, sentiment has rebounded slightly. While 4 of the 6 components that comprise the WSJ/Vistage Small Business Index have risen since last month, the others held compared to last month.

Streamlining workforce

The proportion of small businesses that plan to increase their workforce in the next 12 months improved to 43% from 36% last month, and the proportion that plan to decrease their workforce improved just slightly, falling to 16%. Looking back over the first part of the year, 23% of small businesses report their workforce has decreased since the beginning of the year. While plans to decrease personnel may correlate with slowing demand and economic uncertainty, other factors also contribute.

The growing adoption of AI among small businesses could positively impact productivity. Our June survey will explore this issue in depth by examining the reasons behind workforce reductions, presenting two scenarios: one focused on challenges and the other on innovation. As a respondent noted, “We are limiting new hiring for full-time roles and are instead looking into AI and automation to streamline our workflows.”

While economic pessimism eases, impacts of tariffs remain

While still below last year, the most significant driver of the month-over-month improvement is small businesses’ sentiment about the economy’s future, which has eased from last month. Indeed, 30 percent expect the economy to improve over the next 12 months, compared to 25 percent last month. Most notable is that 44% of small businesses expect the economy to worsen, a 13-point improvement from 57% last month.

Despite easing pessimism, the impact of tariffs continues. Two-thirds of small businesses report negative impacts from tariffs; 30% report direct impacts, and 36% report indirect impacts. Direct impacts include supply chain and rising input costs, while indirect impacts are reflected in slowing demand based on customer uncertainty or other barriers to growth.

From increased costs to slowing demand and disruption in growth strategies, margins present another challenge for small businesses.

Maintaining margins in the face of rising costs

Rising costs combined with slowing demand impact profitability; 38% of small businesses report their profit margins have decreased since the beginning of the year. Looking ahead, 31% expect profitability to worsen.

One way small businesses are attempting to maintain margins in the face of rising costs is by raising their own prices:

• Nearly 6 in 10 small businesses (59%) report that prices they have paid for goods and services have risen by more than 4%, with 13% reporting costs increasing by more than 10%.
• Over half (52%) of small businesses plan to raise their prices in the next 3 months.
• For small businesses planning price increases, nearly 8 in 10 small businesses (79%) plan to raise prices greater than 4%, with 19% planning increases of more than 10%.

As Taylor St. Germain of ITR Economics shared with leaders in Houston earlier this month, businesses cannot maintain margins entirely through price increases. Improving productivity must be part of the equation that will help small businesses.

Managing stress and burnout as a leader

Indeed, the pressures of managing costs, a changing workforce and driving adoption of new technologies just add to the list of things that keep CEOs up at night. One respondent notes, “Between turnover and staffing and the persistent gap between expectations, capacity is draining. We’re constantly triaging priorities.” Leaders are facing a greater burden of stress. In honor of Mental Health Awareness month in May, our survey captured sentiment about burnout from CEOs of small businesses.

Over the past year, 94% of leaders report feeling symptoms of burnout. But more telling is that nearly one-third (32%) of small business leaders feel exhausted or burned out regularly; 25% report feeling these symptoms frequently, and 7% report feeling burned out daily.

CEOs find various ways to mitigate this stress, from adding leadership support to traditional methods of exercise, mindfulness and getting to nature. One respondent focuses on attention management using insights from Vistage speaker Maura Thomas, sharing that “I’ve learned to protect my energy and delegate better.”

May highlights

The May WSJ/Vistage Small Business CEO Confidence Index was calculated from an online survey sent to CEOs and other key leaders who are active U.S. Vistage members. The survey, conducted between May 5 and 12, 2025, collected data from 495 respondents with annual revenues ranging from $1 million to $20 million.

• Current economy: Nearly 6 in 10 (58%) small businesses believe the U.S. economy is worse than a year ago, a 16-point increase from last month, while just 14% believe the economy is better, a 22-point drop since the beginning of the year.
• Future economy: Pessimism eased among small businesses, with 44% expecting the U.S. economy to worsen in the next 12 months, a 13-point decrease from April. Economic optimism also improved incrementally, with 30% believing the economy will improve in the next 12 months compared to 25% last month.
• Revenue projections: 47% of small businesses expect increased revenues over the year ahead, a 2-point improvement from last month, while the proportion of small businesses that expect revenue decreases in the next 12 months declined 5 points to reach 22%.
• Profitability projections: Nearly 4 in 10 (39%) of small businesses expect profitability to improve in the next year, an incremental improvement from last month, while 31% expect declines in profitability.
• Fixed investment plans: Small businesses remain conservative with spending, with just 29% of small businesses expecting to increase fixed investments. Additionally, 1 in 4 small businesses plan to reduce fixed investment spending in the next 12 months.
• Workforce expansion plans: The proportion of small businesses planning to decrease personnel dipped 2 points to reach 16%, while 43% still plan to increase the size of their workforce in the next 12 months.

To explore the full May 2025 WSJ/Vistage Small Business data set, visit our data center or download the infographic.

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