Measure of small business confidence at 3-year high

WASHINGTON — Small business optimism increased in January to levels last seen before the recession began three years ago, according to a closely watched survey released Tuesday by the National Federation of Independent Business.

The group's index of activity rose to 94.1 in January, up 1.5 points from the prior month and the highest reading since December 2007, the month deemed as marking the official start of the recession.

Economists applauded the increase.

"This is good news, because the weakness of the small firm sector is, in our view, the single biggest reason why employment growth has failed to pick up speed," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The survey is based on responses from 2,144 small businesses who are members of the National Federation of Independent Business.


"The story here is not that we are back to normal but that we are making progress and rapid progress toward that goal and in a very important job-creating universe of companies," said Robert Brusca, chief economist at FAO Economics.

Economists said that the confidence index had been spinning its wheels since May 2009 before showing considerable improvement starting in November.

The plan-to-hire index fell 3 percentage points to a net 3 percent in January but Shepherdson noted that this followed a 9 percentage-point gain over the prior three months. The trend is still positive, he said.

National Federation of Independent Business chief economist Bill Dunkelberg was more cautious.

"While the economy is moving forward, albeit at a snail's pace, it is not nearly fast enough to dramatically improve the unemployment situation, which continues to languish," Dunkelberg said.

He said that manufacturing and exporting were leading the recovery, but noted that these are not labor-intensive sectors.

"Construction, an industry historically dominated by small firms, remains depressed," he noted.

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