Small Business Optimism Higher

Small-business optimism edged up in February as more owners of small businesses came to view the economy as moving solidly into 2006 after ending last year on a surprisingly soft note.

The National Federation of Independent Businesses reported on Tuesday that its index of small-business optimism gained 0.4 points, rising to 101.5 in February on expectations of improvements in sales and capital spending.

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"Capital spending (actual and planned) got healthier and one in five owners views the current period as a good time to expand, strong for this period in the cycle," William Dunkelberg, NFIB chief economist, said in a statement.

The survey found 35 percent of all firms plan to make capital expenditures in 2006, up 3 points from a survey a month ago. The services sector, including professional services and finance, insurance and real estate, reported the largest planned outlays.

In addition, a net 28 percent expect higher real sales over the next six months, up 4 points from January.

"Consumers have not become timid, capital spending is double digit, and the government is spending more," Dunkelberg said.

"First-quarter growth will be strong," he predicted.

Dunkelberg said one concern was a rise in average selling prices, which could dampen prospects for a decline in inflation. But historically strong employment figures were good news for job markets in coming months, he added.

Twenty percent of the small business owners said the current period is a good time to expand facilities, unchanged from January, the survey showed.

A net 3 percent expect business conditions to improve over the next six months, down three points and "typical at this stage of an expansion," NFIB said.

Plans to add to inventories rose 2 points to a net 7 percent of all firms. NFIB said that indicated inventory investment should make a contribution to growth in early 2006 unless sales are so strong that stocks cannot be built up.

Four percent of the owners cited the cost and availability of credit as the number one business problem. Thirty-seven percent reported meeting all their credit needs compared to 6 percent who reported problems obtaining desired financing.

"Credit costs more but is no harder to get," said Dunkelberg. "And because interest costs are not particularly large for most firms, there are few complaints."

The net percentage of owners expecting credit conditions to ease was a negative 7 percent, little changed from earlier in the year.

The Federal Reserve raised short-term rates for a 14th straight time in January, leaving its benchmark rate at 4.50 percent. The Federal Open Market Committee, the Fed's policy-making arm, meets on March 27-28 to weigh its next interest rate move.

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