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Small-Business Confidence Reaches Five-Month High

A new survey from the National Federation of Independent Business (NFIB) shows that small-business owners were more confident in May than at any time since December. The NFIB said this week that its Small Business Optimism Index rose 1.4 points to 98.3, the highest reading in the past five monthly surveys. “It appears that the small-business sector has finally attained a normal level of activity, which will hopefully keep the economy moving forward,” the NFIB said in a statement.

Eight of the NFIB index's 10 components rose last month. One measure of sales expectations, though, declined again in May after a dip in the April survey, as well. Despite the downbeat view on future sales, business owners were quite bullish about earnings. A gauge of profits surged nine points in May, accounting for more than half of the gain in the index.

The survey also showed a solid increase in the number of owners who said now is a good time to expand their businesses and a marginal rise in those saying inventories were too low. On the hiring and compensation front, more owners said they were experiencing difficulties finding workers for open positions. And, more than 80% of those hiring or trying to hire in May reported few or no qualified applicants, a sign that the labor market is tightening rapidly.

That labor market tightening could also be resulting in business owners needing to pay their employees more, as a net 14% of managers said in May that they will increase pay, unchanged from the previous month. In April, a net 24% said they recently boosted compensation for their workers. “The reported gains in compensation are still in the range typical of an economy with reasonable growth, and labor market conditions are tightening, which will put further upward pressure on compensation,” said William Dunkelberg, NFIB’s chief economist.

The NFIB is a lobbying group that says it has 350,000 small-business owners as members. The group said that 616 businesses took part in the May survey.