U.S. small business owners gained confidence in April and were surprisingly bullish about capital expenditure plans, further supporting views that economic growth was rebounding after a dismal first quarter.
The National Federation of Independent Business said on Tuesday its Small Business Optimism Index rose 1.7 points to 96.9 last month. It was the largest gain since December.
"A fairly positive tone. The data add to the evidence that the weakening in growth in first quarter was largely due to 'transitory' factors," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Small businesses historically have accounted for half of private gross domestic product. The economy is clawing back after being slammed by a mix of bad weather, disruptions at ports, a strong dollar and deep spending cuts by energy firms.
Data on employment and consumer sentiment have suggested a pick-up in growth momentum at the start of the second quarter, but the dollar and lower oil prices continue to weigh on manufacturing.
Nine of the NFIB index's 10 components rose last month, with the exception of sales. The NFIB said despite the turmoil in the energy sector, "the shale states exhibited stronger capital spending and hiring than the rest."
Overall business investment has sagged, with energy companies slashing capital expenditure budgets and laying off thousands of workers as lower energy prices undermine exploration and drilling activity.
The NFIB survey of 1,500 firms found that 60 percent, a post-recession high, reported capital outlays, up two points. Of those making expenditures, 44 percent said they had bought new equipment, up four points. About 26 percent of owners planned capital outlays in the next 3 to 6 months, up 2 points.
FRONT-LOADED CUTS
This bolsters views the bulk of the energy spending cuts were front loaded into the first quarter and hopes that capital spending outside the energy sector will spring back.
The government reported last month that mining exploration, shafts and wells spending plunged at a 48.7 percent annual pace in the first quarter, leading investment on nonresidential structures to contract at a 23.1 percent rate.
That contributed to holding down gross domestic product growth to a 0.2 percent rate, according to the government's advance estimate. Data on trade and wholesale inventories, however, suggest the economy contracted in the first three months of the year.
The NFIB survey also found an increase in the number of owners saying stocks were too low and that they had plans to increase inventory investment. This could be a positive for growth in the second quarter after businesses amassed huge stocks of goods at the start of the year, which was seen as at least partly unintended.
Owners were downbeat on sales, but surprisingly optimistic about earnings. The survey's labor market indicators showed further signs of the job market tightening, with an increase in the share of owners saying they could not find qualified workers for open job positions.
While a separate report from the Labor Department showed a dip in job openings in March, in line with weak payrolls growth that month, the overall trend painted a solid employment picture.
Job openings slipped 150,000 to 5 million. They were, however, up 18.6 percent from a year ago.
There was an increase in the number of people voluntarily quitting their jobs, a sign of confidence in the labor market.
"Confidence in the labor market has obviously returned ... people are quitting their jobs because they have options and opportunities," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
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