- The NFIB’s small business optimism index improved for the fourth consecutive month in May, rising by 1.5 points to 105. The increase exceeded consensus expectation, which called for a weaker 102 showing.
- Movements among the survey’s subcomponents were generally positive, with six improving, one declining, and three remaining unchanged. Capital spending plans increased (+3 points to 30%) as well as actual capital outlays, which was up 6 points to 64% – the highest reading since February 2018. Firms expecting higher sales (+3 points to 23%) and an improvement in economic conditions (+3 points to 16%) also improved on the month. Overall, small business owners’ expectations for sales, business conditions, and expansion all rose.
- Labor market indicators were also broadly positive. The percent of firms with unfilled job openings remained unchanged from last month at 38%, while plans to increase employment edged marginally higher (+1 point to 21%). The number of firms planning to raise compensation increased notably by 4 points to 24%, as firms continue to struggle with finding qualified applicants for job postings (+5 points to 54%).
- Expectations of easing credit conditions was the only subcomponent to decline (down 1 point to -5%).
Key Implications
- Small business optimism has perked up of late and continues to climb, recovering from the shutdown induced doldrums in the first quarter. Overall, firms are signalling confidence in the strength of the economy by increasing current capital expenditure as well as planning further outlays in the future. The employment outlook has also been fairly positive with firms seeking to hire and expressing a willingness to raise compensation in order to do so.
- The general upbeat tone of the report notwithstanding, current trade conflicts between the U.S. and major trading partners remain the fly in the ointment and could have significant implications for small businesses if not quickly resolved. What’s more, the possibility of further escalation could weigh heavily on small business optimism in the months ahead, if such actions dent market outlook, depress sales activity, and ultimately diminish firms profitability.
