Small business optimism index reflects recession, not recovery

A monthly measure of optimism among small business owners has retreated for a third straight month, a trend that reflects recession rather than recovery.

“Corporate profits may be at a record high, but businesses on Main Street are still scraping by,” said Bill Dunkelberg, chief economist for the National Federation of Independent Business.

The NFIB reported that its Small Business Optimism Index fell three-tenths to 90.9 in May. The index is now at its lowest level since September.

The index is based on the results of a survey of 733 randomly selected small business owners who belong to the NFIB, a small business advocacy organization based in Washington, D.C.

Dunkelberg attributed the latest drop to weak consumer spending, which is especially problematic for the service sector dominated by small businesses. Plans for capital spending, inventories and hiring all reflect increased concerns and uncertainty among owners.

For May, seven of 10 components of the index declined.

The proportion of owners responding to the May survey who expect business conditions to improve over the next six months actually rose three points, but remains at a negative 5 percent.

While 50 percent of owners reported making capital expenditures over the past six months, the share of owners planning capital outlays over the next three to six months fell a point to 20 percent, a recession-level reading.

Just 5 percent of owners said they consider now a good time to expand, up a point. Of those who said now is a bad time to expand, 71 percent cited a weak economy and 14 percent cited political uncertainty.

A net negative 3 percent of owners plan to increase inventories, down two points.

A seasonally adjusted 12 percent of  small business owners reported unfilled job openings, down two points and an indication unemployment rates will rise.

A net negative 1 percent of owners expect to increase staffing over the next three months, down three points.

The share of owners reporting higher sales over the past three months fell four points to a net negative 9 percent. A net

3 percent of owners expect higher real sales, down two points.

The proportion of owners reporting raising average sales prices rose three points to a net 15 percent, an indication of increasing inflation.

Reports of positive earnings trends fell two points to a net negative 24 percent.