Small Business Confidence Slipping Amid Slump

Optimism about the economy among the country's small businesses slipped in February as owners reacted to a raft of bad news, the National Federation of Independent Business said in a survey released Tuesday.

The NFIB said the index of small business optimism edged down 1.5 percent to 82.6 in February from the previous month.

"Reports of modest increases in earnings and sales measures were good news for owners, though likely only temporary, but it is clear that the first quarter of 2009 will be as bad as the fourth quarter of last year," said NFIB Chief Economist William Dunkelberg.

Over the next three months, owners will continue to shed jobs and pull back on compensation, which will help to keep a lid on labor costs, the survey said.

Small business owners continue to liquidate inventories and have been using massive price-cutting for months to accomplish the reductions, the survey said.

As the economy weakens, loan demand fades as fewer capital projects are planned and inventory investment falls. For some owners, loan demand rises to secure the cash needed for survival, the survey said.

Because of the slowdown in the economy, the credit-worthiness of many potential borrowers has deteriorated over the last year, leading to more difficult terms and higher loan rejection rates, even with no change in lending standards, it added.

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