Small Businesses Slowly Becoming More Optimistic

WASHINGTON--U.S. small businesses are slightly more optimistic about their economic outlook than they have been in the last two years but are still not ready to expand staffs and boost capital spending, according to a survey released Tuesday.

The National Federation of Independent Business said its survey showed the second straight month of gain in its small business optimism index in May. It was up 1.6 points in the month bringing the index to 92.2, the highest reading since September 2008.

"Seven of the 10 index components rose, but job creation and capital expenditure plans barely gained and remained at recession levels," the NFIB concluded.

"The recovery in optimism we are currently experiencing is very weak compared to recoveries after 1982 or 1975," the survey concluded. "The May Optimism index is a shade better than April but remains well below the other recovery trajectories."

At the same time, more business owners expect conditions to improve in the next six months, the survey showed.

NFIB chief economist William Dunkelberg said the biggest concern of small business owners is weak sales and until that turns around, they will not be inclined to hire new staff or invest in new equipment.

The NFIB survey of 823 businesses through the end of May showed that more small businesses are experiencing weakening sales than are enjoying sales improvement. Widespread price cutting was also reported, it said. May was the 18th consecutive month in which more business owners reported cutting average selling prices than raising them.

"The Fed is right, the likelihood of inflation breaking out in the near term is low, but the picture is changing and could change quickly," the NFIB report concluded.

Small businesses account for about half of gross domestic product and many analysts do not see U.S. employment picking up much until small firms begin hiring.

Dunkelberg said the survey results reflect dissatisfaction with current economic policies and concerns about the impact of the European debt crisis on the U.S. economy. He said the uncertainty was feeding reluctance by small business owners to hire and take on new risk.