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SMALL BUSINESS KEEPS ON ROLLIN'

Worries grow, but so do profits

Although the stock market has recovered and credit markets are on the mend, many large U.S. companies--particularly manufacturers--are feeling the pain of falling exports and sagging profits. So it's hardly surprising that planned layoffs by major corporations are soaring and that a recent Conference Board survey of chief executive officers found that their confidence has plummeted to a seven-year low.

Not so the nation's small businesses, which employ half of private-sector workers and account for the lion's share of job growth. According to the National Federation of Independent Business, its index of small-business optimism in October came in at 100--below its average level earlier in the year, but still relatively high.

''While firms say they expect the economy to weaken over the next six months, components of the optimism index reflecting current business activity remain quite strong,'' says NFIB economist William C. Dunkelberg.

Perhaps the strongest are those related to the labor market. A record 33% of NFIB members said they had ''hard-to-fill'' job openings in October, for example, and a record 21% indicated that finding qualified workers was their biggest problem. Moreover, some 20% plan to add workers in the months ahead, compared with just 8% that are planning layoffs.

Even in the face of labor shortages, productivity appears to be on the upswing. Despite slowing sales gains, rising labor costs, and a historically low level of price increases for their products, small businesses in October still turned in one of their best profit performances of the year.

Meanwhile, on the investment side, plans to add to inventories rebounded in October after a sharp decline in September. And capital-spending plans accelerated, as well. As for borrowing needs, small businesses continue to report little difficulty in obtaining funds. ''Credit availability is as good as it has ever been, and rates have been falling,'' observes Dunkelberg.

Thus, small-business activity continues to hum, even as worries about the future grow. If you look at profits and at hiring and investment plans, ''it's clear that the anticipated slowdown still hasn't materialized,'' Dunkelberg says.

BY GENE KORETZ



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