Small business owner confidence rises in December

Small business owners are feeling more confident about the state of the economy, according to a recent survey by the National Federation of Independent Business (NFIB). The survey indicated that confidence among small business owners rose in December to its highest level in 10 months.

Small businesses can be a key engine for job growth, so the survey results may lend hope that better times are ahead for the economy. Though no survey is a perfect indicator of the future, trends in small business confidence have a strong bearing on key economic indicators such as job growth, the stock market and interest rates.

Small business looks up from a long way down

Employment growth strengthened in the second half of 2011, but this trend will have to continue in 2012 for the U.S. economy to escape the doldrums.

While they didn't indicate any massive gains, the full results from the December NFIB survey, which was released January 10, featured a number of encouraging points:

1. Confidence is rising. The NFIB survey's index of small business confidence rose for the fourth consecutive month, bringing it to its 10-month high.
2. Expansion plans are increasing. As an expression of growing confidence, the percentage of respondents citing the coming months as a "good time to expand" rose to its highest level in four years.
3. Availability of credit does not seem to be a problem. Only 4 percent of survey respondents said the availability of credit was their primary business problem, while 93 percent reported either having enough access to credit or not being interested in borrowing.

There were, however, some factors that tempered the good news:

1. All indicators are coming off a very low base. Now a reality check -- while many aspects of the survey indicate improvement, they are starting from very low levels that are more consistent with recessions than expansions.
2. 2011 saw a false start. One more point to temper optimism about improvement in these figures is that last year also started on a wave of optimism, only for confidence to slip back down by the middle of the year. Recent trends have to be characterized as encouraging, but they're not yet firmly established.

The overall picture painted by the NFIB survey is one of a small business community with growing but fragile confidence. Under the right conditions, it could gradually build on its recent momentum, but as yet that momentum is still too weak to withstand any unexpected shocks.