by Calculated Risk on 6/14/2011 07:30:00 AM

From National Federation of Independent Business (NFIB): Consumer Spending Remains Weak: Small Business Optimism Dips Lower in May

The Index of Small Business Optimism fell 0.3 points in May to 90.9. This month marks the third monthly decline in a row. The proximate cause is the fact that 1 in 4 owners still report weak sales as their top business problem. Consumer spending is weak, especially for “services,” a sector dominated by small businesses.
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Twenty-five (25) percent of the owners reported that weak sales continued to be their top business problem

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in graph gallery.

The first graph shows the small business optimism index since 1986. The index decreased to 90.9 in May from 91.2 in April.

This has been trending up, although optimism has declined for three consecutive months now.

The second graph shows the net hiring plans for the next three months.

Hiring plans declined in May and are slightly negative.

According to NFIB: “[I]ndications of minimal future growth include the fact that in the next three months, 13 percent plan to increase employment (down 3 points), and 8 percent plan to reduce their workforce (up 2 points). That yields a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a 3 point loss from April."

Weak sales is still the top business problem with 25 percent of the owners reporting that weak sales continued to be their top business problem in May. In good times, owners usually report taxes and regulation as their biggest problems.

The recovery continues to be sluggish for this index, probably somewhat due to the high concentration of real estate related companies.