Small Business Optimism at 1-Year High; Credit is 'Non-issue'

Small Business Optimism at 1-Year High; Credit is 'Non-issue'Optimism among U.S. small business owners jumped to a one-year high in May, with credit continuing to be a non-issue, with only 5 percent saying that all their lending needs were not met.
For the second consecutive month, small-business owner confidence edged up, according to the index from the National Federation of Independent Business, which increased by 2.3 points to a final reading of 94.4 in May.
While May’s reading is the second highest since the recession started December 2007, the index does not signal strong economic growth for the sector.
Eight of 10 Index components gained momentum, showing some moderation in pessimism about the economy and future sales.
However, planned job creation fell 1 point and reported job creation stalled after five months of gains.
“Small-business confidence rising is always a good thing, but it’s tough to be excited by meager growth in an otherwise tepid economy,” said NFIB chief economist Bill Dunkelberg. “Washington remains in a state of policy paralysis, and while the stock market sets records, GDP posts mediocre growth.”
The index reading is back to its May 2012 level, which is identical to the November 2007 level.
“Two good months don’t make a trend, but we can’t have a trend without them, so it’s a start,” Dunkelberg said.
More businesses are being formed than lost, but too many existing firms have not yet started to replace the workers shed during the recession, the NFIB.
Business owners were asked to identify their top business problem: 24 percent cited taxes, 23 percent cited regulations and red tape, 16 percent cited weak sales and 2 percent reported financing/access to credit.
Here are other highlights for May:

  • Job Creation. Jobs creation fell for the first time since November 2012. Small employers reported an average gain of negative 0.04 workers per firm—essentially zero.
  • Hard to Fill Job Openings. Forty-seven (47) percent of owners hired or tried to hire in the last three months and 38 percent (81 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.
  • Sales. The net percent of all owners reporting higher nominal sales in the past three months compared to the prior three months was unchanged at a negative 4 percent. While this is the best reading in nearly a year, there are still more firms reporting declines than gains. The net percent of owners expecting higher real sales volumes rose 4 points to 8 percent of all owners. Sales expectations are trending better, but are still historically weak.
  • Earnings and Wages. Earnings trends improved 1 point over April’s reading, landing at a negative 22 percent. Three percent of small employers reduced worker compensation and 20 percent raised compensation, yielding a net 16 percent who reported higher worker compensation (up 1 point). A net 9 percent of owners plan to raise compensation in the coming months, unchanged in May.
  • Credit Markets. Credit continues to be a non-issue for small employers, only 5  percent of whom say that all their credit needs were not met in May. This is down 1 point from April and the lowest reading since February 2008. Twenty-eight (28) percent of owners surveyed reported that all their credit needs were met last month, and 53 percent explicitly said they did not want a loan (67 percent including those who did not answer the question, presumably uninterested in borrowing as well).

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