Mixed-but-Steady Signals

The latest survey of the small-business community's state of mind shows taxes taking over from hiring as the most pressing concern

Small business is not banking on a robust year, nor is it indulging in sky-is-falling scenarios. That's the picture painted by the the Index of Small Business Optimism, measured monthly by the National Federation of Independent Business, which barely budged in January after falling 3 points in December.

Small companies cut more jobs than they created last month, which jibes with their expectations for the near future: While 11% of businesses surveyed report that they expect sales to rise in the next 3 months to 6 months, that figure represents a significant decrease vs. a year ago, when a 33% of those surveyed expected sales to increase over the next quarter or two.

Now that the economy is no longer growing at a breakneck 8% and hiring is less crucial, the shortage of qualified labor no longer rates as the "most important problem." That spot now belongs to taxes, which got 24% of the vote.

Small-business profits fell in January for 42% of companies and rose for only 15%. "It got ugly," is how NFIB chief economist William C. Dunkelberg describes the change. Half the components that make up the index -- which covers sales, earnings, economic outlook, prices, employee compensation, credit conditions, inventories, capital spending, job creation, and inflation -- gained ground, and half lost ground.

All in all, it's a weak picture -- but not a recessionary one. Says Dunkelberg: "The issue is whether this downshift will simply slow economic growth for 2001 or is it just the first shift on the way to reverse."

By Theresa Forsman in New York