Small Firms Pessimistic About State of the Economy

Small businesses are feeling kind of gloomy, according to a trade group's index of small business optimism.

The October index, compiled by the National Federation of Independent Business, fell 5.4 points to 87.5, the third lowest reading in the survey's 35-year history.

"The decline in the index is a clear indication that the economy is solidly lodged in a recessionary mire," said NFIB Chief Economist William Dunkelberg. "The third-quarter decline in Gross Domestic Product was not large, 0.3 percent at an annual rate, but consumer spending - 70 percent of GDP - was down more than 3 percent. The consumer does not appear ready to get into a holiday mood to save the fourth quarter numbers."

The index also revealed that the average employment per firm declined by 0.41 workers in October, a worse showing than September's data.

Nine percent of the owners increased employment by an average of 2.7 workers per firm, but 17 percent reduced employment an average of 2.7 workers per firm, seasonally adjusted.

The percentage of owners planning to make capital expenditures over the next six months fell two points to 19 percent. This figure was last this low in 1975 and only lower in 1974, when it was 16 percent.

"Clearly in this uncertain environment, owners are postponing any capital projects that are not essential to the operation of the firm," Dunkelberg said.

The index showed that small firm owners are still satisfying customer demand out of current inventories but plans to replace stocks are weak. Weak demand for goods or services was their single most important business problem in September, taxes were second and inflation and cost and availability of insurance tied for third.

By Sharon McLoone |  November 11, 2008; 2:07 PM ET Data Points
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