U.S. small business optimism index rises for fourth straight month in May

U.S. small business optimism rebounds for the fourth straight month in May. The NFIB small business optimism index rose 1.5 points to 105. The rise came in above expectations of 102. The subcomponents data were generally positive. Six of the subcomponents rebounded, whereas one dropped and three stayed the same.

Capital spending plans rose as well as actual capital outlays, which rose 6 points to 64 percent – the highest reading since February 2018. Companies expecting higher sales and a rebound in economic conditions also rebounded in the month. In all, small business owners’ expectations for sales, business conditions and expansion all rose.

Labor market indicators were also widely positive. The percent of companies with unfilled job openings continued to be the same from last month at 38 percent, while plans to increase employment rose marginally. The number of companies planning hike compensations rose markedly by 4 points to 24 percent, as companies continue to struggle with finding qualified applicants for job postings. Expectations of easing credit conditions were the only subcomponent to fall.

In all, companies are hinting at confidence in the strength of the economy by increasing current capital expenditure as well as planning further outlays in the future, noted TD Economics in a research report. The employment outlook has been quite positive with companies seeking to hire and expressing a willingness to raise compensation in order to do so.

“The general upbeat tone of the report notwithstanding, current trade conflicts between the U.S. and major trading partners remain the fly in the ointment and could have significant implications for small businesses if not quickly resolved. What's more, the possibility of further escalation could weigh heavily on small business optimism in the months ahead, if such actions dent market outlook, depress sales activity, and ultimately diminish firms' profitability”, added TD Economics. 

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