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3.29.99  
You Gotta Look Hard to Find the Party Poopers
Two new studies show small biz is spending more on high tech and looking to hire, too

The Dow is teetering around 10,000. Tech stocks are hurting. But entrepreneurs -- those cockeyed optimists -- are more bullish than they've been in at least a year, according to PricewaterhouseCoopers' latest survey of fast-growing small companies.

Small wonder. Another fresh survey, by Duke University's Fuqua School of Business and the Financial Executives Institute, shows small companies (those with sales of less than $100 million) expect their earnings will grow by 17.4% this year. In contrast, large companies foresee their earnings rising by 14%. The Duke study polled 131 small companies and 240 large ones in the week of Mar. 15.

More than three-quarters of the chief execs PWC surveyed say they're optimistic about 1999 in the light of economic conditions and their financial results from the last quarter of 1998. Only 5% are pessimistic, and 18% are uncertain. Small-business optimism made a big comeback after the third quarter of 1998, when only 43% were optimistic about the coming 12 months, and 44% were uncertain. The CEOs haven't been this positive since the fourth quarter of 1997, when 73% were optimistic about the coming 12 months.

PWC surveyed 451 executives of companies with revenues from $1 million to $50 million -- half of them in high tech -- from late January to mid-February.

SPENDING SURGE. The implications for the economy as a whole are positive. Both surveys show small businesses clearly plan to contribute their bit to growth. According to PWC, 55% are planning capital investments. They're also investing more -- 13.2% of revenues, vs. 11.3% in the third quarter of 1998 and 12.5% a year ago. What are small-biz owners buying? Computer equipment, of course.

That correlates with the Duke survey, which indicates that small companies plan to boost their capital spending by 13.2% in 1999. What's more, they're exploiting the Net more than large companies are. Small ventures expect the Net to generate 4.3% of their sales in 2000, up from 1.7% in 1998. Large businesses expect their Net sales share to jump to 3.8%, from 1% over the same period.

If you're hiring, there's little relief in sight. The companies' exuberance suggests that the job market will remain tight -- especially in the high-tech sector. Eighty percent of the PWC respondents will be adding staff. The percentage hiring has held fairly steady, ranging from 78% to 81%, since the beginning of 1998.

Clouds on the horizon? In line with U.S. jobs data, wage pressures and hiring problems are the main concern, with almost 63% in the PWC survey fretting over the lack of trained workers. That's down from nearly 70% a year ago, but still high.

All this bullishness adds up to a prediction from the companies PWC polled: The U.S. economy will grow 3.07% for the next 12 months. That's a jump from their view late last year, when they foresaw the U.S. economy expanding by 2.55%. And in their own sectors, these entrepreneurs are predicting 11.05% growth, up from expectations of 10.1% a year ago.

Even the old small-business bugaboo of pesky regulations seems to be less of a problem under the circumstances: Only 30% say that's a significant hindrance to growth, compared with 37% in the beginning of 1998.

By Julia Lichtblau in New York
Julia_lichtblau@businessweek.com

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