NFIB's Small Business Index Showed Uptick in Optimism in May

Fifth consecutive month of improvement shows recovery is 'headed in the right direction'

Optimism of small businesses improved in May for the fifth consecutive month, according to a survey released Tuesday, June 8, by the National Federation of Independent Business (NFIB).

The May index of small business optimism gained 1.6 points from April, to 92.2. According to the NFIB, this is not a strong signal of recovery, "but it is headed in the right direction."

It's the best reading since September 2008 (92.9), just before the 5.4 point decline in October. Seven of the 10 Index components increased, but job creation and capital expenditure plans barely moved and remained at "recession" levels. The duration of recession readings in the NFIB survey is exceptionally long compared to the 1980-82 recession period. If this is a "V" recovery, it is "lower case," the survey stated.

"This is a pleasant, though modest surprise," said Ian Shepherdson, chief economist at High Frequency Economics, in an analyst's note, "but note that it still signals ongoing contraction in the small firm sector. In the past the index has had to be above about 95 to signal positive growth. Things are different this time because larger firms are hugely outperforming, thanks--we think--to their greater export focus and their ability to raise funds outside the banking system. We remain nervous, though, that the impact of the stock market plunge over the past month will limit any further near-term gains in the survey."

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