Small Business Optimism Index Hits Highest Level Since 2007

On June 10, the National Federation of Independent Business (NFIB) released the May edition of its Small Business Optimism Index, and it’s great news!

June 20, 2014

4 Min Read
Small Business Optimism Index Hits Highest Level Since 2007

By Marie Alonso 1

On June 10, the National Federation of Independent Business (NFIB) released the May edition of its Small Business Optimism Index, and it’s great news!

According to the NFIB, small businesses are continuing to show confidence as the impact of the harsh winter fades. The index rose 1.4 points in May to 96.6, the third straight monthly gain. It’s also the index’s highest reading since September 2007.

Media coverage of the index sees the rise as a sign that the situation for small businesses is improving and small-business owners have recovered all of the optimism lost during the Great Recession.

Wall Street Journal: The index has increased for three consecutive months, but the NFIB has played down the gains. The improvement, while welcome, is far below readings that normally accompany an expansion, the report said. Even so, the confidence seems to be feeding into pricing decisions. “Price hikes are more widespread than at any time since 2008 (with the exception of a brief period in 2011) and profit trends are improving a bit,” the report said. Seasonally adjusted, the net percentage of owners that have raised their selling prices held at 12 percent. In addition, a net 21 percent plan price hikes in the next few months. If successful, the economy will see a bit more ‘inflation’ as the price indices seem to be suggesting. Small-business owners expect business conditions to improve in the future.

CBS News: In a boost for jobs, small-business optimism is growing! Small-business owners are more optimistic about their prospects than at any time since the before the Great Recession. Several trends point to better days ahead for small businesses, according to the NFIB. Although rising labor costs are keeping pressure on earnings, profit trends are improving. That is persuading at least some small-business owners, who saw revenue plunge following the 2008 financial crisis, to start hiring again.

CNBC: Small-business owners were more upbeat about the U.S. economy in May, according to a monthly industry survey. The National Federation of Independent Business on Tuesday said its Optimism Index rose 1.4 points to 96.6 in the month, the highest reading since September 2007. The NFIB cautioned, however, that while the survey has showed an improvement in sentiment for the third straight month, the index remains far below readings that have normally accompanied an expansion in the U.S. economy.

Fox Business: May was the eighth month in a row in which small-business owners increased employment—the longest period of gains since 2006. NFIB respondents grew payrolls by a seasonally adjusted average of 0.11 workers last month. Plans for job creation rose 2 percent to a seasonally adjusted net 10 percent. The NFIB says this figure is approaching “normal” levels for a growing economy. Small-business owners also reported positive news regarding sales. The net percent of business owners who reported higher nominal sales in the past quarter improved 1 point to a net negative 1 percent. In comparison, this reading hit lows of negative 34 percent in 2009. Only 12 percent of business owners reported weak sales as their most pressing business problem—the lowest percentage since December 2007.

Still, while the improvement is certainly good news, the current reading of 96.6 is still “below average” and far from what is considered to be an expansion level.

“May’s numbers bring the Index to its’ highest level since September 2007. However, the four components most closely related to GDP and employment growth – job openings, job creation plans, inventory and capital spending plans – collectively fell 1 point in May.  So the entire gain in optimism was driven by soft components such as expectations about sales and business conditions,” reports Bill Dunkelberg, NFIB Chief Economist. “With prices being raised more frequently in response to rising labor and higher energy costs it is clear that small businesses are unwilling to invest in an uncertain future. As long as this is the case the economy will continue to be ‘bifurcated,’ with the small-business sector not pulling its historical weight in the GDP numbers.”

Click here to view the entire NFIB June 2014 Report.

Marie Alonso is an online marketing and media strategist at Miles Technologies, a leading IT company. The Miles Technologies team contributes business-driven content to The VAR Guy regularly.

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