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The Economy's Quickening Pulse

Small-business owners are growing more upbeat by the day, according to the latest monthly survey of entrepreneurs' spending and attitudes by the National Federation of Independent Business (NFIB), which notes that its Index of Small Business Optimism rose 4.1 points in August, 2003, to hit all-time high of 104.7. The survey found improvements in sales, earnings, and capital investment.

Of the businesses surveyed, 42% expect to see the overall economy improve in the next six months -- a 4-point jump since July. William C. Dunkelberg, NFIB chief economist, doesn't see any reason to question entrepreneurs' increasingly upbeat mood, nor to doubt that the economy's nascent return to health is about to gather momentum. Of the optimism index, he says: "This component has reliably anticipated every period of growth since 1975.... The last five months' readings are sending a very clear signal -- economic activity is on the way up."

SALES AND EARNINGS. Dunkelberg's appraisal is based on responses to the monthly questionnaire, which is sent to more than 7,000 NFIB members. Small-business sales trends appear to be improving dramatically, the survey notes, with 34% of those polled reporting higher sales and just 23% witnessing declines. The number of outfits expecting the volume of business to increase in the next three months rose 9%, to 29%, the first tick in expectations in over a year

The number of businesses reporting increased earnings also rose by two points, to 25%, while those hit by decreased earnings fell 3 points, to 32%. Businesses making capital investments in the last six months rose to 59% of respondents, up 3 points from July. Meanwhile, the number of firms reporting plans to hike capital spending over the next six months also increased, leaping 6 points from July to 32%.

The survey's findings weren't entirely rosy, with respondents making this the 27th straight month in which small-business payrolls shrank. Despite those growing sales gains, small-business owners, like their counterparts in Corporate America, appear hesitant to start hiring again. But on the whole, Dunkelberg believes the survey represents very positive news. "Job creation will turn positive over the next month finally," he writes in his analysis of the trends. "Capital spending is picking up, slowly as expected, but the direction is good. Inventory accumulation could turn aggressive, adding some real energy to manufacturing and to the GDP math." After the uncertainties of the past three years, it may just be time for small-business owners to start smiling again -- albeit a little guardedly. By Ted Popper in New York

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