Index: Small business owners more upbeat

William Dunkelberg
William Dunkelberg

A monthly measure of optimism among small business owners has increased on more upbeat expectations for earnings, expansions and economic conditions.

The National Federation of Independent Business reported that its Small Business Optimism Index rose 1.4 points to 98.3 in May.

The latest reading is the highest since the index stood at 100.4 in December and exceeds what at 98 is the average for the 42-year-old index. The long-term average for the index was slightly higher prior to the recession at 99.5.

“It appears that the small business sector has finally attained a normal level of activity, which will hopefully keep the economy moving forward, even at a sub-par pace,” said Bill Dunkelberg, chief economist for the NFIB. “That being said, improved profit trends accounted for over half the index gain, a rather unusual but welcomed development. That was supported by positive sales trends and continued, although rising, fuel prices.”

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

Dunkelberg said that overall, the index remains in a holding pattern and shows no indications of breaking into a pattern of stronger growth. “The NFIB May survey results conform that the economy is moving ahead, but at an uninspiring pace. Owners do what is necessary, like hiring workers when needed, to keep up with growth mostly powered by an increasing population.”

For May, six of 10 components of the index advanced.

The proportion of small business owners responding to the survey upon which the May index was based who reported higher earnings jumped nine points. At a net negative 7 percent, the reading still reflected more positive than negative responses. But counting a 16-point gain over the past two months, the reading has climbed to its highest level since 2005.

The share of owners who said they plan to make capital outlays over the next three to six months slipped a point to a net 25 percent. But the portion of owners who said they consider now a good time to expand jumped four points to a net 14 percent.

The net percentage of owners planning to add to inventories remained unchanged at 4 percent. The proportion of owners who said existing inventories are too low edged up a point to a net zero percent.

The share of owners who expect higher sales fell three points to a net 7 percent. A net 11 percent of owners cited poor sales as their most pressing business problem, forth behind taxes, government regulations and quality of labor.

The proportion of owners who expect the economy to improve in coming months rose three points, but remained at a net negative 3 percent.

A net 12 percent of owners reported plans to increase staffing, up a point. A net 29 percent of owners reported hard-to-fill job openings, up two points and the highest reading since April 2006.