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THE STATE OF SMALL BUSINESS

Why You Should Take Heart
 

The latest small business optimism survey shows a weak recovery is underway, but small gains are better than nothing.

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The latest National Federation of Independent Business small business optimism survey paints a mixed picture for small business owners.

As you're keenly aware, the economic recovery is progressing in fits and starts--and small business owners are still largely uncertain about what current conditions mean for their business, the survey shows. As a result, many small businesses are reducing inventories, while others are making capital expenditures while sales seem to be falling.

In line with the larger trends, small business optimism notched a tiny gain of 0.2 points to 94.1 in January. But that's up significantly from 2009 when the optimism index stood at 82.6. NFIB's survey tracks entrepreneurial optimism and many other measures of economic contentment according to a proprietary numerical scale from which it derives percentages.

A net 8 percent said the next three months would be a good time to expand, a two-percentage point increase compared to the same period five years ago. The outlook for general business conditions, however, was still in negative territory, notching a net negative 11 percent. That's an improvement of nearly 20 points from January 2013, and about on par with the same period in 2009, at the outset of the recession.

More businesses reported lower earnings, with the index decreasing one point to a net negative 27 percent compared to the same period a year ago. However, that represents a 20-point improvement compared to 2009 when the index was net negative 47 percent. The greatest factors for decreasing earnings were the volume of sales and higher prices, according to the report.

Sales also fell to a net negative 10 percent, compared to a net negative 9 percent for the same period in 2013. But the current number represents a 20-point increase compared to five years ago.

Sales expectations for 2014 were good, with a net 15 percent expecting higher sales, compared to a net negative one percent in January, 2013 and a net negative 20 percent in January 2009.

Meanwhile, on the inventory front, more businesses are decreasing inventory, though at a lower rate than the same period in 2013. That's still much better than January 2009, when the index was more than four times lower.

Fifty-nine percent of businesses surveyed reported making capital expenditures in the previous six months, a five-point increase compared to the same period in 2013, and an eight-point increase compared to 2009. Most business owners reported making expenditures for vehicles and equipment, spending less than $100,000.

On the hiring front, 22 percent of small business owners reported job openings in January 2014, compared to 11 percent in 2009. Twelve percent reported plans to hire in the next three months, an eight-point increase compared to last January, and an 18 point increased compared to five years ago, when a net negative 12 percent of small business owners said they would hire in the coming quarter.

IMAGE: Alamy
Last updated: Feb 12, 2014

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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