Small Business Optimism: 2nd Highest Level In 45-Year History

Today, the National Federation of Independent Business (NFIB) reported the May Small Business Optimism Index increased to the second highest level in the survey's 45-year history. The May reading increased 2.6 points versus the April reading and exceeded the high end of the consensus range.

Econoday reports:

"the rise in optimism among small business owners was broad-based, with 8 of the 10 components of the index showing improvement. Contributing to the overall gain were plans to increase inventories, which rose 3 points to a net 4 percent, earnings trends, rising 4 points to net 3 percent and a survey record, plans to make capital outlays, up 1 point to a net 30 percent, and expected credit conditions, which rose 1 point but remained negative at a net minus 5 percent."

Four out of last seven highest NFIB readings have occurred in the last eighteen months. As the below chart shows, historically, 1-year subsequent returns for the S&P 500 Index have generally been strong following high levels of small business optimism. Going forward I will include tracking of the equity market's performance based on this new high reading as well.

Disclosure: None.

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