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Glum -- and Getting Glummer

The terrorist attacks had an immediate, measurable effect on the outlook of the nation's small-business owners. The latest monthly survey of small-company owners by the National Federation of Independent Business shows a stark contrast in attitude after Sept. 11, the day of the attacks.

The NFIB divided responses into two groups, those postmarked before that date and those mailed later. Business owners' plans for capital spending, hiring, and sales growth plummeted after terrorists steered hijacked planes into the World Trade Center and the Pentagon, killing some 6,000 people.

This monthly poll of business owners covers 11 questions about spending, income and attitude, job openings, expected sales in the next six months, real sales compared with the last three months, and the status of inventories and prices. Collected and distilled, the findings are reflected in an overall Optimism Index.

As of August, that index was 101.5, three points above the average for January through July. Tallying only the responses received before the terrorist attacks yields an Optimism Index of 99.2 for September. Using only the responses after the attacks puts the index at 94.2, the lowest reading since 1993.

BLEAKNESS, UNCERTAINTY. Now, far fewer small-business owners expect sales gains over the next three months. That's realistic, according to NFIB chief economist William C. Dunkelberg's view of the near-term landscape. "The actual loss of assets and production capacity in New York was just a dent in the assets and productive capacity of the U.S. economy," he says. But "the associated shutdown of the transportation system was much more significant in its impact on output and employment," he adds. "Most difficult to quantify is the psychological impact on spending -- how big and how long."

At least in the short term, the capital-spending outlook among business owners is bleak. It has reached its lowest level in the 15-year history of the survey, with just 25% of respondents saying they expect to make such outlays in the next three months.

Some of the business spending, along with the consumer spending, suspended during the weeks immediately after the attacks will now be spent in different places (closer to home, perhaps) and for different things (increased security, videoconferencing), Dunkelberg predicts. That switch will cause inventory imbalances and excess capacity in some areas, most notably the travel and leisure industry.

SILVER LINING? Offsetting the bad news, though, are factors that will likely spur economic growth and strengthen the business climate. He cites low inflation, a huge monetary stimulus in the form of spending and interest-rate cuts, falling energy costs, and a newly expansive fiscal policy. "It was insane to commit the country to 10 years of surpluses," says Dunkelberg, who equates them with "fiscal drag."

At the same time, he doesn't see the Federal Reserve's latest rate cut -- 50 basis points on Oct. 2 -- as much of a boost to the economy. "Battling fear and uncertainty with more rate cuts seems to be an almost fruitless exercise," he said. "It's never easy living in the economy that follows right after 'the record,' but now it's a lot tougher than we expected."

Before Sept. 11, the economy was suffering from the excess spending of the last few years; now it's suffering from a dearth of optimism that traveled from Wall Street to every Main Street in an instant.


Those answering Sept. 1 to 11

Those answering Sept. 12 to 27

Percent change

Plan to hire workers within 6 months




Have capital spending plans within 6 months




Foresee better business conditions in 6 months




Expect sales gains within 6 months




*Net percentage, which means percent expecting gains minus those not expecting gains.

By Theresa Forsman in New York

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