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A Little Glow Of Mptimism From The Small Fry

Economic Trends


The approach of Christmas has apparently brought small businesses an infusion of holiday cheer. According to the monthly survey of the National Federation of Independent Business, its small-business optimism index surged higher in November, erasing virtually all of its decline since last January. The positive mood change has affected small-business spending plans, which seem to be finally entering a higher track (chart).

NFIB economist William C. Dunkelberg notes that some 17% of respondents now expect the economy to improve over the next six months, nearly double the 9% low hit in August. And 12% think it's a good time to expand, the highest November reading since 1989. Moreover, 34% reported higher sales during the past three months, compared with 23% reporting declines.

"What's significant about these numbers is not that they're anything to write home about," says Dunkelberg, "but that they seem to be encouraging many small firms to boost investment."

While most small businesses say they are satisfied with their inventory levels, for example, 17% now plan to add to stocks in the months ahead. "At a time of year when many businesses usually want to trim inventories," says Dunkelberg, "that's a solid swing into positive territory." More important, nearly 35% of the businesses surveyed in November say they plan to make capital outlays in the next six months-the highest monthly tally since early 1989.

Meanwhile, on the job front, small businesses have now registered small net increases in employment for six out of the last seven months. Dunkelberg adds that 14% plan to add more workers in the months ahead, compared with 10% that expect reductions--"a number that points to a pickup in hiring if the economic news remains good."

The catch to this positive picture, cautions Dunkelberg, is that spending plans could still be cut back sharply if the economy falters. "Small business was even more optimistic late last year," he notes, "but it didn't last."GENE KORETZ

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