Small-business owners seem to be wearing rose-colored sunglasses this spring, according to the latest survey from the National Federation of Independent Business.

The NFIB’s Small Business Optimism Index increased 1.4 points in May for a final reading of 96.6 – the highest reading since September 2007. May is the third consecutive month of gains.

NFIB Chief Economist Bill Dunkelberg says it's not time for celebration just yet.

“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,” said Dunkelberg in a statement released Tuesday.

The NFIB also pointed out that the current reading of 96.6 is still well below the norm when it comes to periods of expansion.

A Closer Look

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% to a seasonally adjusted net 10%. 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%. In comparison, this reading hit lows of negative 34% in 2009.

Only 12% of business owners reported weak sales as their most pressing business problem – the lowest percentage since December 2007.

Additionally, expectations around sales also improved. The May survey found that 15% of owners expect real sales to improve. This is the best reading since the middle of 2007. However, the NFIB report points out that expectations around sales have not necessarily translated into stronger demand for inventories or employees.

The May NFIB Small Business Optimism Index is based on survey responses of 678 small businesses in the NFIB’s membership. Surveys were conducted throughout the month of May.
 

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