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`Good Signs Everywhere For Small Business'

Economic Trends


The upbeat mood seen recently among manufacturers has spread to the small-business sector. The National Federation of Independent Business (NFIB) reports that its quarterly index of small-business optimism jumped four points in April, hitting a three-year peak. NFIB President Jack Faris sees "good signs everywhere for small business."

The latest gain reverses three quarters of decline. It was just a few months ago--in January, on the heels of a dismal Christmas--that respondents said they had had the worst sales decline in the 18-year history of the survey. By contrast, April results show that sales rose last quarter for the first time since the first quarter of 1990. At the same time, earnings rebounded and turned in their best reading in a year and a half.

On the other hand, small-business hiring last quarter was decidedly restrained, with respondents reporting a net loss of workers. "Only the starting of new firms, which is not reflected in our survey, is adding something to employment rolls," says NFIB economist William C. Dunkelberg, who notes that even in the 1980-82 recession, new starts created 1.5 million jobs.

Similarly, inventory liquidation proceeded apace in the first quarter, as 21% of respondents reduced stocks, compared with 14% who increased them. And capital spending remained mired at its lowest level since 1983.

Fortunately, all of this may be about to change. Looking ahead, 16% of companies surveyed said that now was a good time to expand--the highest percentage in two years. Some 48% expect better business conditions vs. only 7% who anticipate a worse climate. And 57% expect a pickup in real sales volume, while only 13% predict a decline.

What's more, the little guys are planning to raise spending. Capital-investment plans are up slightly, and some 18% of small businesses now plan to build inventories, compared with 11% planning reductions. At the same time, 20% intend to boost employment over the next six months, more than three times the number anticipating layoffs. "The upswing in spending and hiring plans," says Dunkelberg, "suggests that the survey reflects more than just hope that the economy will pick up steam."GENE KORETZ

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