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Small firms see bright future
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January 18, 1999: 3:03 p.m. ET
Optimism index jumps for third consecutive month
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NEW YORK (CNNfn) - Small firms ended 1998 on a positive note, with the Small-Business Optimism Index jumping for the third month in a row in December.
The index, which measures the economic status, plans and expectations of 556 small companies across the country, rose a half-point in December to 101.5.
The National Federation of Independent Businesses, which developed the index, said the increase was driven primarily by "renewed aggressiveness in small-business spending plans." Investments in hiring and inventory increased substantially, and capital spending reached record highs. More than 70 percent of companies surveyed made at least one capital outlay during the previous six months, and 41 percent plan to make capital investments in the first half of 1999.
"The index suggests that the consensus economic forecasts predicting slower growth for the first half of 1999 will be wrong again," NFIB chief economist William Dunkelberg said. "We look for growth in Gross Domestic Product to keep running above 3 percent until at least mid-year."
The survey found price-cutters outnumbered price-hikers in record amounts. Only 12 percent of companies reported raising their prices, whereas 18 percent said they lowered prices.
"I won't say 'deflation,' but price paring was widespread. It reached far beyond manufacturing and agriculture," Dunkelberg said.
Small-business profitability was not hurt by the price cuts, thanks to an increase in sales volume.
"Shopping action must have been heavy, as the frequency of reported sales gains jumped way up in November, to the third-highest level in all of '98," Dunkelberg said.
The labor market remains tight, according to the study, with companies boosting salaries and reporting continued difficulties in filling positions. But taxes, typically a big concern in December, outranked "finding qualified workers" as the most important problem facing firms. 
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