Small business optimism eclipsed pre-shutdown levels, increasing 1.5 points to 105.0 in May. Six components in the Small Business Optimism Index improved, three were unchanged and one dipped. Capital spending plans increased along with actual outlays. Small business owners’ expectations for sales, business conditions and expansion all rose, as the previously reported inventory imbalance was resolved. Earnings, job creation and compensation remained very strong.

“Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales,” said NFIB President and CEO Juanita D. Duggan. “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees and the economy as a whole.”

Business owners reporting capital outlays increased six points to 64 percent, the highest reading since February 2018. Thirty percent plan capital outlays in the next few months, up three points and historically high. Plans to invest were most frequent in transportation (45 percent), manufacturing (39 percent), professional services (39 percent) and construction (31 percent).

“Small business owners are demonstrating a continued confidence in the strength of the economy and are betting capital spending dollars on it,” said NFIB Chief Economist William Dunkelberg. “This solid investment performance is supporting ongoing improvements in productivity and real wages.”

A net 9 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from April and historically strong. The net percent of owners expecting higher real sales volumes rose three points to a net 23 percent of owners. A net 16 percent expect better business conditions, up three points, and 30 percent say now is a good time to expand, a five-point increase. The frequency of reports of positive profit trends improved two points to a net negative one percent, a very solid gain.

The net percent of owners reporting inventory increases was unchanged at a net 2 percent (seasonally adjusted), consistent with the significant build up in the first quarter that added nearly one point to GDP growth. The net percentage of owners viewing current inventory stocks as “too low” was unchanged at a net negative 4 percent. The net percentage of owners planning to expand inventory holdings was unchanged at a net 2 percent, indicating the excessive inventory build in Q1 has been substantially resolved overall, helped by strong sales gains.

Inflation pressures remained subdued, even though reports of compensation gains remained at historically high levels. The government reported a substantial improvement in productivity and an associated decline in unit labor costs which offsets the need to increase prices to cover rising labor costs. The net percentage of owners raising average selling prices fell three points to a net 10 percent, seasonally adjusted. A net 20 percent plan price hikes, seasonally adjusted (down one point).

As reported in the May NFIB Jobs Report, small business owners added a net addition of 0.32 workers per firm, with 25 percent citing the difficulty of finding qualified workers as their Single Most Important Business Problem, matching the record high. Sixty-two percent of owners reported hiring or trying to hire employees, up five points from last month, but 54 percent reported few or no qualified applicants for the positions they were trying to fill (up five points).

View the NFIB Small Business Economic Trends Survey.