A measure of optimism among small business owners has climbed to its highest level so far this year, but still remains below its historical average.

The National Federation of Independent Business reported its Small Business Optimism Index rose eight-tenths of a point between April and May. But at 90.5, the latest reading remained below the average reading of 98 for the 50-year index.

“The small business sector is responsible for the production of over 40 percent of GDP and employment, a crucial portion of the economy. But for 29 consecutive months, small business owners have expressed historically low optimism, and their views about future business conditions are at the worse levels seen in 50 years,” said Bill Dunkelberg, chief economist of the NFIB.  “Small business owners need relief as inflation has not eased much on Main Street.”

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group, most of them small business owners.

For May, five of 10 components of the index increased, while three decreased and two remained unchanged. Six of the components were in negative territory.

The proportion of NFIB members who responded to the survey upon which the May index was based who expected the economy to improve rose seven points from April. But at a net negative 30 percent, more members anticipated worsening conditions.

A net 23 percent reported plans for capital outlays, up a point. A net 4 percent said they consider now a good time to expand, unchanged from April.

The share who said they expect increased sales fell a point. At a net negative 13 percent, more anticipated decreased sales.

The proportion of members who said they expected increased earnings fell three points to a net negative 30 percent. Among those reporting lower profits, 32 percent blamed weaker sales,
15 percent cited rising material costs and attributed the situation to labor costs.

A net 15 percent of members reported plans to increase employment, up three points. But 42 percent of members also reported hard-to-fill job openings, up two points.

The share of members reporting plans to increase inventories was unchanged from a month ago. At a net negative 6 percent, more anticipated decreased inventories. The proportion of those who said existing inventories were too low fell four points to a net negative 8 percent.

Asked to identify their single most important business problem, 22 percent cited inflation, followed by the quality of labor at 20 percent. A net 25 percent of members reported increases in average selling prices, while 37 percent reported increased compensation.