Max Chafkin | Inc. magazine

Small Businesses Turn Bullish In May

 

June 17, 2005--Small business owners are finally feeling better after five straight months of declining optimism, the National Federation of Independent Business (NFIB) reported Tuesday.

The advocacy group's Optimism Index -- released as part of its Small Business Economic Trends Survey -- rose a point in May to 100.8, breaking a skid that began last November when the index set a record high at 107.7. The rebound was fueled primarily by earnings growth and planned hiring, according to the report. William Dunkelberg, NFIB chief economist, said that the survey results indicated that the economy is moving in a good direction, though he expects some future volatility.

He credited the earnings improvement to a combination of minimal salary increases with strong sales growth and price increases. Three-month net sales growth was up from 2% to 6%, while net expected sales growth was up from 23% to 25%.

The number of small businesses expecting to add jobs increased for a second straight month to 15% net, putting it in stark contrast with the May payroll survey, which found that only 78,000 jobs were created. However, Dunkelberg said he felt the NFIB data reflected the true employment picture and was in step with the rosier household survey, which reported that the economy added 300,000 jobs in May. "In the household survey people are telling you whether they got a job or not, so it's a much better indication of whether they are working or not."

The most significant factor hurting the index was the credit climate, fueled by expectations of yet another rate hike by the Federal Reserve. Still, only 4% of respondents said that their credit needs were not met over the last three months, which Dunkelberg said indicates that rates can go a lot higher before small businesses begin to feel the effects. "We're paying a little bit more for the money, but there's been no change in the availably of credit," he said.

Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin