Small Businesses See Recession as ‘Short-Lived’

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Small business optimism over the economy rebounded in May after reeling from the coronavirus outbreak and owners believe a recession will be “short-lived,” according to a closely-watched survey.

The National Federation of Independent Business said its Small Business Optimism Index increased 3.5 points last month to 94.4. That followed a record 8.1-point drop in March and a decline of 5.5 points in April.

The May gain was the largest since 2017 and topped economists’ expectations. The pre-coronavirus index reached 104.5 in February.

The NFIB survey’s uncertainty index increased seven points to 82 in May but expected business conditions in the next six months increased 5 points to a net 34{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, following a 24-point increase in April.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” NFIB Chief Economist Bill Dunkelberg said in a news release. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

Respondents to the May survey respondents reduced employment by 0.17 workers per firm in the prior three months, down from an addition of 0.09 workers per firm in the April report. But the small business labor market appears to be benefiting from coronavirus relief programs as 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of owners now plan to create new jobs.

Small businesses are “planning to re-hire workers as the economy is reopened and stay-at-home orders end,” though “generous unemployment benefits are making it harder for some firms to re-call workers and fill open positions,” the NFIB said.

The survey also found that sales expectations for the next three months increased 18 points to a net negative 24{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, rebounding from April’s lowest reading in history of a net negative 42{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.

“Looking ahead, as the U.S. economy continues to gradually reopen, small business activity should come back to life,” Lydia Boussour, senior U.S. economist at Oxford Economics, wrote in a client note. “But the severity and lingering effects of the COVID-19 crisis also mean that many small businesses won’t survive the recession.”