Small Business Confidence Dips in May From Near-Record in April

Optimism at small U.S. businesses faded slightly in May from a near-record April as inflation became more of a concern, but job growth and profits remained strong, a survey released on Tuesday showed.

The National Federation of Independent Business (search) said its monthly small business optimism index dipped 0.9 points in May to 104.5, notching its 14th consecutive reading at or above 100 -- the best performance since the survey began in 1986.

"This is a very strong run, confirming the view that 2004 will be the best economy in 20 years," the federation said in summarizing results of a survey of 587 small U.S. businesses.

"Not everything is perfect ... the inflation picture continues to worsen," it said.

In recent months, 6 percent of small businesses cited inflation as their number one problem -- up from 1 to 2 percent in recent years, the federation said.

"Last September, virtually no firms were raising prices, now price hikes are pervasive in all industries."

The report showed 25 percent of businesses reported higher selling prices, up 3 percentage points from April.

"Plans to raise prices are double year-ago levels. Pressures on the inflation rate are not going to subside soon, even if oil prices fall," the report said.

Higher selling prices were also boosting bottom lines, with 26 percent of owners reporting profit gains, up 3 points from April. Stronger sales were credited by 62 percent of firms for profit growth, while 12 percent cited higher selling prices.

"For the second month in a row, the percent of firms raising prices equaled or exceeded the percent raising compensation -- good news for profits. This hasn't occurred since the 1980s," the group said.

Capital spending plans edged a point lower to a still-solid 34 percent, the report showed. "Clearly firms are going to spend more on inventory investment, with an historically high percent of owners planning accumulation and a clear "lean" evaluation for current inventory stocks," the group said.

As reported late last week, hiring at small businesses grew steadily in May, with firms adding an average of 0.2 employees in the month, matching April's increase.