Small Business Optimism Reverses Five Month Decline

It wasn't that long ago that I wrote with some concern about the five-month decline in optimism among U.S. small businesses. Well, the good news is that the latest optimism survey showed an increase once again, stopping the decline.

That's according to the Optimism Index performed each month by the National Federation of Independent Businesses (NFIB).

The NFIB's Optimism Index is highly regarded as small business surveys go, and is even incorporated into the SBA's Quarterly Indicators Report. It also has nearly a 20-year history, so the results can be put into perspective and compared with prior surveys (something many other surveys do not do).

Not that conditions were all that bad when I last noted them. Actually, by historical standards optimism levels remained quite positive even in light of the decline. It's just that the optimism was steadily dropping for five months -- and had the steady drop continued it would not be a good sign.

Here is what the most recent NFIB Optimism Index, released June 13, 2005 (PDF), showed:

The Small Business Optimism Index rose one point in May to 100.8 (1986 = 100). The May reading reverses a five month decline in the Index from its record high reading of 107.7 in November 2004. Job creation plans and positive earnings trends accounted for the bulk of the improvement. An Index reading of 100 translates to a 1986 economy, the base year for the Index (1986=100). Nineteen eighty-six was a good year when real GDP grew 3.5 percent and inflation was three percent (GDP deflator). In 2005, first quarter GDP grew 3.5 percent. The economy is one-quarter of the way to a 1986 repeat. Trade will produce more risk to GDP growth than it did in 1986, but spending on both foreign and domestic goods and services will be strong.

It's unrealistic to think optimism can keep rising forever. It will go up and down. But the most recent rise in optimism, after the five-month decline, is a positive sign.