Biz owners still hurting, but gaining optimism

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NEW YORK (CNNMoney.com) -- The fundaments of their businesses are still bad, but for the first time since last year small business owners are hopeful that economic conditions will soon improve, according to a new survey by the National Federation of Independent Business.

NFIB's monthly "optimism index" rebounded to 86.8, up 5.8 points from April's reading, which marked the second lowest in the survey's 35-year history. Eight of the index's ten components improved, lead by big gains in business owners' expectations that the overall economy and their own company's sales will get better in the next three to six months.

"The most important thing for business owners is that someone is coming in their door," said NIFB Chief Economist Bill Dunkelberg. "They are seeing some more people right now, and they're hoping that that will continue. If it does, we'll see those soft indicators turn into hard indicators."

The survey's hard indicators are still grim. Employment, capital spending, inventories, sales and earnings are still at historically low levels, according to the NFIB's poll of 1,794 small business owners. Just 4% of those surveyed increased employment at their company within the last three months, while 30% reduced it.

Despite a marginal improvement from last month's reading, a majority of business owners said their sales have fallen in the past three months. A record-high 11% reported reducing compensation for their workers, and inventory stockpiles hit a new record low.

"But they have apparently seen something," Dunkelberg said of the survey's finding that business owners' outlook is growing more optimistic. A majority of those polled still expect poor sales for the next three months, but this month's survey saw a 20-point rise in the percentage of business owners expecting their sales to improve in the next quarter. For the first time since October, there are more owners who believe general business conditions will improve than who think that they will worsen.

"While the numbers aren't great, they're definitely an improvement," Dunkelberg said.

The NFIB is comparing the data collected from this recession to the readings it recorded in the early 1980s. Dunkelberg believes that while the optimism index from month to month may wobble, it will generally continue to go up from here.

"We won't know for sure until we have hindsight, but I predict the private sector is starting to heal itself," he said.