Oct. 14, 2004--The overall outlook for small businesses remains strong and steady, according to a survey released Tuesday.

The National Federation of Independent Business' Small Business Optimism Index climbed a point and a half in September to 104.5, marking the eighteenth consecutive month with a reading of 100 or more.

"The index continues in a strong growth mode, just a few points shy of record-high readings of the early 1980s," said William Dunkelberg, chief economist at the NFIB, in a statement. "Overall, the index forecasts strong GDP growth for the fourth quarter."

Among the factors driving the index, inventory-building plans and capital-spending projections both gained strength, while seasonally adjusted employment gains leveled off and job-creation plans slipped slightly.

The percent of owners who intended to build inventory soared to the strongest reading since the mid-1990s, the report said. Those reporting positive sales rose to 8%, adding to a six-month run in reports of higher sales--the strongest since 2000. But expectations for improved future sales fell slightly.

Twenty-three percent of those surveyed believe that this is a good time to expand facilities, up three points from August levels and five points from one year ago. More than one-third said they expect business conditions to be better six months from now, an increase of four points.

"With interest rates stubbornly low, the environment for economic growth would seem to be very good," Dunkelberg said. "However, there are still many uncertainties to resolve--the election, Iraq and oil supplies."

Of the 25% of firms that confirmed actual profit gains, 56% credited stronger sales, while 8% pointed to higher selling prices. Of the 31% reporting lower earnings compared to the previous quarter, more than one-third cited weaker sales or a poor economy; nearly one-fifth percent blamed materials' costs; 13% put the onus on insurance; one-tenth blamed labor costs; and 3% each single out lower selling prices and regulatory and compliance costs.

Fifteen percent of the owners reported employment gains, while 10% confirmed reductions. General hiring plans in general slipped slightly but remained strong.