Economy

May's Small Business Optimism Index Is Second-Highest Ever

Andrew Filer / Wikimedia Commons

The National Federation of Independent Business reported on Tuesday that its small business optimism index for May jumped 3 percentage points to 107.8 from 104.8 in April. This is the second-highest reading in the index’s 45-year history and the highest in 34 years. The consensus estimate from economists was for the index to increase by only 0.4 percentage points, to 105.2.

The four “hard” measures of the index were mixed last month: The job creation component rose 2 points month over month in May to 18%, the job openings component dropped 2 points to 30%, the capital spending plans variable rose 1 point to 30%, and plans to increase inventory investment rose 3 points to 4%.

February’s 107.6 reading was the second-highest ever until May. The highest reading of all time was posted in 1983 at 108.

Some 35% of small business owners reported raising employees’ pay in the past three months. That’s a rise of 2 points on a seasonally adjusted basis from the April total, and equal to the March reading, both the highest level since 2000. Since January  2017, net compensation changes have increased by 5 percentage points. Some 20% of small business owners are planning to raise wages in the next three months, down 1 point month over month.

The NFIB’s president and CEO, Juanita Duggan, commented:

Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes. For years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase.

Bill Dunkelberg, NFIB’s chief economist, said:

Small business owners are continuing an 18-month streak of unprecedented optimism which is leading to more hiring and raising wages. While they continue to face challenges in hiring qualified workers, they now have more resources to commit to attracting candidates.

Quality of labor is business owners’ most important problem according to 23% of the survey respondents. Taxes (17%) and regulations and red tape (13%) followed. Both competition from large employers and the cost and availability of insurance were named as the most important problem by 10% of respondents.

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