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Optimism improves among small business owners

Date posted:  6/4/14 07:45:00 AM Optimism among small business owners is improving.

With giant corporations such as Walmart and AmBev continuing to make headlines as economy drivers, it's easy to forget that the backbone of the U.S. economy is based on small businesses.

A small business is defined as any company that employs less than 100 people, but there's really nothing small about the impact these ventures have on the economy. Small businesses employ more than half of the nation's workforce.

So when small business owners report a change in their notion of the nation's economy, it's important to take note.

The National Federation of Independent Business, a nonprofit group that puts forth a monthly survey of small business owners' plans and opinions, reported that small business owners are exuding a more positive outlook in March compared to February. The Small Business Optimism Index jumped two points to 93.4 in March, which is good news after a lethargic February saw increased pessimism among entrepreneurs.

While the 93.4 optimism rating shows the outlook for small business owners is on the rise, Bill Dunkelberg, the chief economist for NFIB, would like to see the Index rise to more than 95 points.

"Overall, the March gain more or less reversed the February decline," Dunkelberg said. "While the Index still can't seem to get above 95, we can be encouraged that the economy is at least crawling forward and not heading in reverse."

Jumps, declines and remaining flat

The NFIB reported that six of the Index's 10 components improved, two went unchanged and two were lower in March than February.

The six components that saw improvements in March included: plans to increase inventories, current inventory, expected improvement in the economy, expected real sales higher, now is a good time to expand and earning trends.

The two factors that remained flat from February to March were current job openings and expected credit conditions.

The two components that small business owners believe are worse than the previous month were plans to increase employment and plans to make capital outlays.

Sales figures in March

Weak sales totals for small business owners are still one of the chief problems as the economy struggles to bounce back to precession levels. According to the Optimism Index, 14 percent of owners claimed weak sales were the chief problem for their business. The NFIB considers that a high total, but that number is actually dropping and starting to approach normal levels seen before the burst of the housing bubble.

Small business owners expect real sales volumes to post a robust 9 point gain ‡ in March, which is a solid gain despite the fact that many business owners view future growth as relatively negative.

"The outlook for real sales gains accounted for about half of the improvement with inventory satisfaction and inventory investment plans accounting for most of the rest," Dunkelberg said. "However, throughout this recovery we've seen these types of increases only to have them go nowhere. As long as Washington continues to ignore policies that could restore the middle class, job creation will continue to be sub-par."

To inflate or not inflate
According to the survey, 12 percent of small business owners actually reduced their average selling prices in the last three months. That's a startling number because only three percent planned any sort of price reductions, which potentially means that these small businesses are cutting prices in order to maintain sales totals.

Meanwhile, 23 percent of small business owners reported to increase their prices over the last three months. Typically, when the economy improves, inflation ticks up at a slightly faster rate.