Here’s some positive news: small business optimism is back to pre-Great Recession levels. Small business owners are feeling more optimistic than anytime since September 2007.
That’s according to the latest Small Business Optimism Index from the National Federation of Independent Business (NFIB). And that is indeed good news to see conditions bouncing back.
However, that sense of optimism is tempered because we’re still below normal levels. The “average” or “normal” level of optimism would be an index rating of 100 (see the accompanying chart). Even though the Small Business Optimism index improved 1.4 points from the prior month, it’s still only at 96.6.
What’s more, the improvement is not being driven by the kind of indicators that normally accompany an economic expansion, according to the NFIB’s Chief Economist.
“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. 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,” said Bill Dunkelberg, NFIB Chief Economist.
“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,” he added.
And What About Those Improved Indicators?
Several indicators showed positive improvement. The biggest gains came from the indicators for expectations. In other words, business owners reported what they expect to happen – not actual conditions.
The most significant gains came from those who expect the economy to improve, and those who expect sales to be higher. “Still, expectations lead actual decisions, and the gains were large,” noted Dunkelberg.
Yet, even with expectations that sales are going to improve, “poor sales” still ranked among the top three challenges small businesses face, along with taxes and government regulation.
Other indicators stayed flat, having little movement in either direction. Plans to increase capital spending and to increase inventory levels saw little movement, down one point and two points, respectively. Current job openings and actual inventory levels during May were essentially flat.
The Small Business Economic Report and Optimism Index for June 2014 measured data from 678 randomly sampled small businesses in the NFIB’s membership base, during the month of May 2014. Founded in 1943 to give small-business owners a voice in public policy-making, NFIB has 350,000 business-owner members nationwide in the United States. The full report is here.