Small Business Optimism Up Slightly in May

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for May rose 0.2 point from 93.6 in April to come in at 93.8. The May reading remains well below the index’s 42-year average of 98.

The four “hard” measures of the index posted mixed results last month. The job creation component rose one percentage point in May to 12%, the job openings component fell two points to 27%, capital spending plans also fell two points to 23% and inventory investment plans fell one point to -1.

Some 26% of small business owners reported raising employees’ pay in the past three months. That’s up two points on a seasonally adjusted basis from the April total. Just 15% are planning to raise wages in the next three months, unchanged month over month.

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In its commentary on the report the NFIB noted:

A year ago, only 16 percent of consumers thought the government was doing a good job with economic policy (University of Michigan). Now, 23 percent think so, an improvement of sorts, but nearly 40 percent characterize policy as poor, basically unchanged. Optimism improved, reaching its highest level since January of 2015, reversing an 11 month 9 point slide in Optimism through April. The percentage expecting their finances to improve reached its highest point in 10 years. Improved credit was supporting spending. Perhaps this will translate into improved consumer spending, but it has yet to show up on Main Street.

Fred Graziano, head of Commercial Banking at TD Bank, commented on the May report:

In spite of last month’s increase ending a two-year low, the May data confirms that small business owners remain uncertain about the overall state of the economy. As we look ahead to the second half of the year, we anticipate improvement in business conditions and expected sales to contribute to an increase in small business optimism down the line.

The NFIB reports that 27% of business owners currently have positions open that they are unable to fill (down two percentage points from April) and that 48% said there were few or no qualified applicants for the open positions, up two points from the prior month’s total.

Business owners said their single most important problem is taxes (23%), government regulations and red tape (18%) or poor sales (14%). The least important problem is financing and interest rates (1%).

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