Optimism Rises Again Among Small Business Owners

Old-fashioned Main Street
Old-fashioned Main Street

The National Federation of Independent Business (NFIB) this morning reported an increase of 2.3 points in its small business optimism index, up from 92.1 in April to 94.4 in May. The NFIB noted that the May index is the second highest since December 2007.

Of the 10 index components, the NFIB recorded gains in eight, with spending plans remaining flat and new hiring down one point. The largest gain among the 10 components of the index came in expectations for the economy to improve, which rose 10 points but remains at an overall negative 5% reading.

The NFIB's chief economist said:

Small business confidence rising is always a good thing, but it's tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis, and while the stock market sets records, GDP posts mediocre growth. The unemployment rate remains in the mid-7s and it is departures from the labor force - not job creation - that is contributing to its decline when it does fall. It's nice to see confidence not shrinking, but there isn't much to hang your hat on in this report. We are back to where we were in May 2012. Two good months don't make a trend, but we can't have a trend without them, so it's a start.

More than 60% of business owners surveyed expect business conditions for the next six months to remain as they are or get worse. That represents an improvement of 13% over the March reading.

Job creation showed no gains, coming in flat to April's reading. Sales growth was also flat with April, and pessimism on future sales growth outweighs optimism.

On a positive note, wages rose by 1%, and plans to raise workers' compensation are flat at 9% of business owners.

The biggest drags on independent businesses according to the survey were taxes (noted by 24% of respondents), regulations and red tape (23%), and poor sales (noted by 16%).

Some 47% of business owners either hired or tried to hire new employees in the past three months, and 81% of the firms looking for employees reported few or no qualified applicants for the open positions, according to the NFIB.

As the NFIB points out, the small business portion of gross domestic product is not generating growth beyond population gains. That is roughly parallel with what we have seen in non-farm payroll reports for some time as well. Tepid growth rates continue to be the new normal.

Filed under: 24/7 Wall St. Wire, Economy, Research

Originally published