Entrepreneurs' Confidence Dips

The question now: Will the pessimism translate into less spending?

They're still hiring, and they're still spending, but small-business owners are more wary of changes in the economy than they have been in years. The Index of Small Business Optimism, derived from a monthly survey by the National Federation of Independent Business, fell 2.9 points, to a seven-year low of 96.7, in December.

"The rate at which this pessimism is translated into spending reductions will determine how quickly the economy cools down," says William C. Dunkelberg, the federation's chief economist. Overall, 29% of entrepreneurs expect the economy to weaken over the next six months, up 8 points from the November survey. Only 14% expect the economy to strengthen.

Companies planning to hire outnumbered by 13% those planning to hold steady or retrench on the jobs front. And while 70% reported capital spending in the last half of the year -- a near record -- only 34% are planning capital outlays in the immediate future. Meanwhile, more small businesses see inventory reductions (18%) than additions (14%). Now that business holiday-season spending is over, these numbers suggest the next couple of quarters will be more lean than the year just past.

By Theresa Forsman in New York

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