U.S. small business sentiment continued to improve in May

The NFIB's small business optimism index moved higher in May, rising by 1.4 points to 98.3. The reading came in above the consensus estimate, which called for a more modest increase from 96.9 to 97.2.

"While the business sentiment is yet not back to its cyclical peak in December, the theme of improvement appears to have certainly set in after the sharp pullback during winter months." said TD Economics 

Weak sales remain as one of the factors that are still holding business confidence back. A gain in earnings expectations in May appears to be primarily driven by firms raising prices rather than the anticipation of higher sales volumes. May marked the fifth month that real sales expectations drifted lower, and the subcomponent is now 13 points below its level in December. 

Labor market indicators continued to point to tightening labor market conditions. In addition to the uptick in the employment subcomponent and the gain in unfilled positions, the share of firms raising or considering raising worker compensation also ticked up for the third consecutive month. 

"While for now wage gains remain modest, the ongoing improvement in the labor market suggests that faster wage growth may be close at hand, boding well for future sales." notes TD Economics