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Small Business Optimism in Midst of “Economic Winter”

A survey by the National Federation of Independent Business (NFIB) reports small business optimism rose nationwide in December for the fourth consecutive month. While the NFIB's Optimism Index gained 5.7 points since September, it is still 6 points below the pre-recession average.

Kevin Shivers, Pennsylvania Director of the NFIB, says they have been measuring optimism since the 1970s. "We reach out each month to small business owners to find out in the perspective months what are their plans for hiring new employees, what are their plans for new machinery or equipment, or what are their plans for increasing investments or expanding their capacity or expanding their facilities," Shivers said.

Shivers said the index provides a more accurate measure of economic vitality than the unemployment rate. He said the jobless rate only gives a glimpse of the economy in the past month, while the index explains what owners and entrepreneurs are thinking going forward.

According to the report, the largest problem small businesses are facing is lower sales. "If there are fewer customers that are coming in the store to buy stuff, then business owners are going to be holding back on making investments to purchase new inventory or perhaps making investments to purchase new machinery or equipment," said Shivers. "And it raised the lack of confidence that employers had with the economy and the policy makers who are shaping our economic climate."

He said before the recession, businesses were most worried about energy and health insurance costs, but sales are now the top concern because they keep businesses afloat.

Shivers said more fiscal responsibility from the federal and state governments would aid small businesses. He said business owners fear governments continuing to take on debt because increased debt usually means more taxes.

Government regulation also adds burdens to businesses, according to Shivers. He said a host of new Washington regulations are adding to employers' troubles and the current cost of complying with federal regulations is around $10,000 per worker.

Shivers said there is hope the rising trend of optimism might stick, but in 2011 the index rose during the early part of the year only to decrease in March and April.

You can read the full report [PDF] at the NFIB website.