Small Businesses Continue To Become More Optimistic, Is An Economic Recovery Near?

It’s been a rough few years for small businesses, but as we’ve continuously pointed out here on the blog, optimism has been rising amongst small businesses the past few months. The good news is that it is still continuing.

This morning, the National Federation of Independent Business reported that its November index of small-business optimism rose for the fourth consecutive month to its highest level in three years. The optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. Seven of the index’s 10 components rose and three declined. The measure averaged 100.7 during the previous expansion. Needless to say, when you think about everything that has happened in the last three years, this is certainly something to celebrate.

The hope is now that small-business owners may pick up the pace of hiring after the jobless rate reached a seven-month high. With more businesses expecting higher sales, the survey also signals an increase in consumer spending, which accounts for 70 percent of the economy.

The gauge of expectations for better business conditions six months from now rose to the highest level since June 2005, jumping 8 points to 16 percent in November, the report showed.

The good news surrounding this increase in optimism is that banks are also taking note and positioning themselves to assist small businesses. Bank of America, the largest U.S. bank by assets, in October said it plans to hire 1,000 employees in the next year to focus on companies with sales of $3 million or less.

Citigroup, which claims 2,500 of the world’s 3,000 largest corporations as clients, is also targeting U.S. companies with less than $20 million of annual sales. The New York-based bank said it plans to hire about 200 employees by the end of 2011 to court them. That would bring the number of small- business bankers to about 500, or one for every two North American branches.

But what exactly does this optimism mean for hiring? Unfortunately nothing too dramatic right now.

The measure of hiring plans over the next three months rose three points to a net 4 percent, according to the NFIB report. Nine percent of businesses said they intend an increase staff, up one percentage point from November. Fewer indicated they plan to cut payrolls, with 12 percent anticipating workforce reductions, down from 13 percent in October.

Even though optimism continues, the biggest problem for small businesses according to the NFIB report is sales. The sales trends are not yet supportive of a widespread recovery in the small business sector even if a bit stronger than October. Weak sales have continued to be businesses’ top problem, with 30 percent of respondents listing it as their main concern. As a result, the high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to pay back.

So where does all of this leave us? In a state of cautious optimism. There are positive signs, but also a few signs that temper the excitement. At least the positive trends have remained steady. Provided they do, it looks like we’re in the early stages of a solid recovery.

[Wall Street Journal]

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