Glimmers of hope for entrepreneurs in 2007

NEW YORK (CNNMoney.com) -- 2006 started strong for small business owners but sluggish economic growth took a toll on entrepreneurs towards the end of the year. Next year promises to be better, but not by much experts say.

In the second half of this year, small business owners spent less on capital equipment, inventory investment weakened and hiring fell flat, according to the National Federation of Independent Business.

"As goes the larger economy, so goes the small business sector," said Chad Moutray, Chief Economist for the Office of Advocacy of the Small Business Administration.

Moutray points to a sluggish housing market, high gas prices and a slump in employment for the downturn in the small business economy.

With hiring down slightly in the second half of the year, small businesses have gotten smaller on average, according to SurePayroll's Small Business Scorecard.

Meanwhile small business salaries have been increasing. Year to date, small business salaries have jumped 7.4 percent to $31,288 on average, SurePayroll reported.

That could be problematic for business owners, according to Michael Alter, president of SurePayroll, if they have to pay more to hire and keep talent and raise prices to stay even.

But there is still reason to stay positive, according to William Dunkelberg, chief economist at the NFIB. "Profits were weaker but overall numbers were quite good."

In fact, even as the economy slowed, small business owners remained fairly optimistic about economic growth into 2007.

Although, the NFIB's Index of Small Business Optimism fell one point to 99.7, it remains at historically high levels.

Although many expect a worsening economy in 2007, small businesses may still prosper in the year ahead. Employment, however, will be key to what's in store.

If the labor market continues to tighten, then attracting and retaining qualified workers will remain a big challenge for small business owners who have always struggled to compete with larger businesses in terms of competitive salaries and benefits.

If, however, the move towards taking early retirement continues to gain momentum, then more people may leave the labor market and choose to become entrepreneurs, which could be a boon to the small business economy.

And for those entrepreneurs eager to start a business, 2007 is not a bad time to bite the bullet. All things considered, while most experts agree that next year won't be exceptional, many contend that it will at least be decent for small business growth.

Dunkelberg, who predicts it will be a "ho-hum year," maintains that there are still opportunities out there for entrepreneurs.

"You should at least have a good year to get started, get your roots down."

Inflation gauge surges

GDP growth slower than expected

(Correction: An earlier version of this story mischaracterized economist Chad Moutray's description of the housing market. CNNMoney regrets the error.)