Small Business Optimism Rises Against Economic Headwinds: NFIB

Less than half (47 percent) of small-business owners surveyed said they hired or tried to hire in the last three months.

Small-business owner confidence edged up for the second consecutive month in May, reaching a level not seen in a year, but while May's reading is also the second highest since the recession started December 2007, the Index of Small Business Optimism does not signal strong economic growth for the sector, according to the National Federation of Independent Businesses' report.

For instance, planned job creation fell 1 point and reported job creation stalled after five months of gains. However, eight out of 10 Index components gained momentum, showing some moderation in pessimism about the economy and future sales. Overall, the Index of Small Business Optimism rose 2.3 points to 94.4.

"Small business confidence rising is always a good thing, but it's tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis, and while the stock market sets records, GDP posts mediocre growth," NFIB Chief Economist Bill Dunkelberg said in a statement. "The unemployment rate remains in the mid-7s and it is departures from the labor force—not job creation—that is contributing to its decline when it does fall.

"It's nice to see confidence not shrinking, but there isn't much to hang your hat on in this report," he said. "We are back to where we were in May 2012. Two good months don't make a trend, but we can't have a trend without them, so it's a start."

Less than half (47 percent) of the small-business owners surveyed said they hired or tried to hire in the last three months, and 38 percent reported few or no qualified applicants for open positions. Nineteen percent of all owners reported job openings they could not fill in the current period, and 13 percent reported using temporary workers, which the report noted as little changed over the past 10 years.

The percent of owners planning capital outlays in the next three to six months was unchanged at 23 percent. Eight percent characterized the current period as a good time to expand facilities (up 4 points), still a very weak number compared with an average value of 16 percent prerecession. The frequency of reported capital outlays over the past six months rose 1 point to 57 percent, 8 points below the average spending rate through 2007.

"There are many headwinds for growth, the most important being consumer spending," Dunkelberg said. "Nothing encourages hiring and inventory and capital investment more than a growth in customers and spending. Consumer sentiment is up some, but not really supported by income growth or new jobs.

"Our global customers are experiencing slow growth for the most part and buying less. Monetary policy has become incomprehensible and fiscal policy is in disarray," he added. "Uncertainty is a major impediment to economic progress. With 2014 elections almost upon us, we'll just have to wait and see."