The NFIB Small Business Optimism Index built up to 105.0 in May, reflecting firming upward momentum since the decline in the index to 104.4 in December. If off the heady readings of mid-2018, the index is still quite strong in the historical context and consistent with at least moderate economic activity.
Small business owners may be more cautious about the economy than they were last year, but the survey responses are far from pessimistic. Six components of the index were up, one was down marginally, and three were unchanged. The tone suggested that perceptions of the present were good and the future were positive.
The largest gain in May was in “now is a good time to expand” which rose 5 points to 30%, its highest since 30% in October 2018, followed by “expectations for the economy to improve” at up 3 points to 16%, its highest since a similar 16% in December 2018. Businesses appear to have moved past the gloomier situation earlier in 2018 with the partial federal government shutdown and are less concerned about the negative impact of trade and tariff policy. “Expectation for higher sales” were up 3 points to 23%, also matching the December 2018 reading. “Plans for capital expenditures” were up 3 points to 30% in May, the highest since 30% in October 2018.
Overall this suggests an upward trend in expectations and activity for small businesses that belies concerns about the uncertainty of future economic growth.
Index components associated with the labor market were little changed. “Plans to increase employment” were up 1 point to 21% and “current job openings” were flat at 38%. The subindex for actual compensation was unchanged at 34% in May. Small businesses continue to plan to hire at a pace not much cooled from and 2017 and 2018. Job openings remain close on the series high of 39% in December 2018 and March 2019. Businesses continue to struggle to find qualified applicants and continue to have to sweeten pay and benefits to attract and retain workers.
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