U.S. Small Businesses See Only One Dark Cloud: Washington

Economic growth may be slowing, but America's small businesses--which are acutely sensitive to the economy's perturbations--have yet to register this development. According to the latest quarterly survey by the National Federation of Independent Business, conducted in July, its small-business optimism index remains in bullish territory (chart).

NFIB economist William C. Dunkelberg notes that 15% of respondents thought the next three months a good time to expand, compared with just 9% in July, 1993. And those anticipating higher sales outweigh those expecting declines by 19 percentage points.

On the inventory front, satisfaction with stock levels "remains about as favorable as it has ever been in spite of accumulation in the second quarter," says Dunkelberg. Plans to add to inventories are also strengthening.

Meanwhile, capital spending is still on a roll, with some 66% of companies reporting capital outlays during the past six months, the highest tally since the 1970s. And rising hiring plans, worker compensation, and job vacancies indicate that small business is facing "the tightest labor market in years."

As for credit conditions, the survey occurred before the Federal Reserve's latest interest-rate hike. But Dunkelberg doubts that the hike upset most companies very much. So far this year, he says, "small businesses seem to have taken the steady rise in rates in stride."

If there's a fly in the ointment, aside from chronic concern over taxes and regulation, it's the political climate. Only 4% of respondents rated the President's policies as "good" or "excellent," and just 1% accorded such favorable grades to Congress. Indeed, a third of those leery about expanding their businesses cited the political climate as the major reason.

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