NFIB Small Business Optimism Index Edged Up But Remained Weak in May

The Small Business Optimism Index edged up to 89.4 during May from a reading of 89.0 in April according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Apart from last month’s report, this was the weakest reading in a decade. The bright spot in the report was a surprising jump in the balance of firms planning to make capital outlays, reversing a steady trend down since last August.

The outlook for business conditions in the next six months remained bleak in May with deeply depressed views on the economy, earnings and sales. The net balance expecting the economy to improve fell to -50% and remained in a range well below any period in the 50-year history of the survey. The net balance expecting higher real sales in six months weakened to -21%, the lowest since last July. The balance reporting higher earnings fell sharply to -26% from -18% two months earlier.

The May survey signaled that the labor market remained tight. The percent of firms planning to raise employment levels increased to 19%. The percent of firms with open positions right now edged down to a still-high 44%, and the percent of firms reporting few or no qualified applicants for job openings remained at an elevated 55%. Indeed, the quality of labor continues to be the single most important problem for 24% of respondents.

Labor compensation pressures increased. The May reading showed that a net 41% of respondents increased compensation over the last three months, up from 40% in in April. An increased net 22% expect to raise compensation in the next three months, up from 21% in April. The cost of labor was viewed as the largest problem by an increased 10% of respondents in May.

Inflation pressures have improved greatly in the past year. The net balance of firms increasing their average selling prices fell to 32% in May, which was the sixth consecutive decline. This figure was down from 65% twelve months earlier. The net balance planning to increase selling prices in the next three months popped up to 29%, but this was sharply lower than the year-ago reading of 51%. Inflation was viewed as the single most important problem by 25% of respondents, down from a high of 37% in July of last year.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.