Business confidence surged in May despite renewed uncertainty in the U.S.-China trade dispute. As shown in the LPL Chart of the Day, “Business Optimism Surges Despite Trade Uncertainty,” the National Federation of Independent Business (NFIB) Small Business Optimism gauge climbed to a seven-month high in May.
The number of companies that made capital outlays rose to a 15-month high, while those with plans to increase capital expenditures (capex) reached a seven-month high. May’s stats show that U.S. companies are feeling empowered enough by economic conditions to invest and expand.
“Upbeat sentiment in May was a positive surprise in an otherwise mixed month for economic data,” said LPL Chief Investment Strategist John Lynch. “Signs of a pickup in capex were especially encouraging, as we believe higher capex could be a key driver of growth as the cycle ages.”
Small business sentiment also improved in the Federal Reserve’s latest Beige Book, according to our proprietary Beige Book Barometer (BBB). The BBB rose to 44 in the latest edition (released June 5 and compiled in the weeks before May 24). Weak words fell to 25 (from 34 in April), while strong words climbed to 69 (from 67 in April).
Consumer confidence also surged in May, as the Conference Board’s Consumer Confidence Index rose to a six-month high. However, the cutoff date for Conference Board’s survey was May 16, so the data likely didn’t capture much of the fallout after the latest flare-up in U.S.-China trade tensions. We’ll get more details on consumer activity in the May retail sales report, which is scheduled to be released June 14.
We aren’t convinced that sentiment has fully recovered. Confidence has been especially susceptible to developments in trade talks, and economic data have been especially volatile this year. We’ll continue to watch economic data for evidence of higher sentiment and activity.
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