Stronger Sales Outlook Raises Small Business Optimism

While optimism among small business owners is still not as high as it was in 2008 before the recession hit its full stride, things are looking up.

That's the word from the National Federation of Independent Business, which released its monthly Small Business Optimism Index today.

NFIB Chief Economist William Dunkelberg told that the 1.8 percent rise in optimism this month comes from indicators that bode well for more increases in the coming months.

"Last month's gain of 1.3 percent came totally from less pessimism about the economy. This month, outlook for sales turned around from a negative number to a positive number," he said, noting that that means business owners could be planning to hire and purchase new equipment, which are all good indications for growth.

In an appearance on CNBC Dunkelberg said the increase is "an improvement, and the second improvement in a row following five [months of] declines." However, the index is still two points below where it was in January, he noted. "We haven’t made a lot of headway, which is not surprising, because things haven’t happened to make people feel optimistic this year."

The index measures 10 components to gauge optimism, including plans to increase employment, make capital outlays and increase inventories, as well as looking at job openings and real sales expectations.

The fact that eight of the 10 components were improved or unchanged is another indication that optimism could improve in the coming months. One indicator, however, was telling in how cautious business owners continue to be.

"The not-so-good news was that there are no plans to add inventory," he said. "Everyone is happy with the current level of inventories. It would be another good boost of GDP if businesses had a good reason to order stuff."

Overall, the measures are still at recession levels, and many NFIB members still believe business conditions will be worse than better in the coming months. "Many are still cautious about the future. That can’t be the case if we’re going to have a growing economy."