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The Little Guys Are Making Some Big Business Plans...

Economic Trends


Although recessionary clouds still obscure the economic horizon, the nation's small businesses are in a surprisingly cheerful mood. The National Federation of Independent Business (NFIB) reports that its small-business optimism index jumped smartly in its April quarterly survey, to 104.1--the highest reading on a seasonally unadjusted basis in three years.

"The recession will be over by the end of this quarter," declares NFIB President John Sloan. Based on the historical relationship between the index and the economy, "GNP growth in the current quarter could hit a 3% annual rate," says William Dunkelberg, who is chief economist for the NFIB.

The survey's upbeat tone is pervasive. More than half of all respondents expect better business conditions and sales in coming months; only 8% anticipate a worsening business climate. On the employment front, a strong 22% of NFIB members plan to expand their work forces in the next six months, nearly four times the number anticipating reductions. And some 19% of companies plan to increase their inventories in the next half year--"a very strong inventory-accumulation picture, even by expansion standards," says Dunkelberg.

Even capital spending, which has been weak over the past six months, is showing signs of life. Some 31% of survey respondents said they plan to make capital outlays in coming quarters. And with interest rates on short-term loans down appreciably and only 11% of NFIB members anticipating more difficult borrowing conditions, signs of a credit crunch were conspicuous by their absence.

Best of all, the anticipated business pickup is associated with slowing inflation. About 16% of small businesses surveyed actually cut their prices last quarter, and only 21% are planning near-term price hikes. Just 19% of small employers plan to raise workers' wages in the months ahead, the lowest reading for April in four years.GENE KORETZ

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