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Headache No. 1? The Quality of Labor
The latest NFIB survey finds taxes are now the second-biggest concern

The paradoxical U.S. economy is striking small-business owners psychologically as well as economically: They're more worried than ever about getting good help, yet they're still hiring aggressively. Entrepreneurs think the economy is picking up. At the same time, sales and earnings are slowing, according to the latest National Federation of Independent Business survey.

The upshot: In November, small-business optimism edged up 1 point from October, to 101, according to the NFIB's latest index. Hiring, capital spending, and inventory investment remain strong. The net percent of respondents who expect the economy to weaken in six months is only 6%, compared with 15% in October.

Entrepreneurs who've been struggling to fill job openings have plenty of company, the NFIB says. For the first time in the 25-year history of the NFIB survey, quality of labor took the lead as the biggest problem owners are facing, with 23% giving it that rank. Of course, a still-high 17% say they plan to hire. Taxes fell to second place in the ranking of business problems: 22% call it their top concern. Regulation and red tape -- perpetual bugaboos for small business -- garnered a mere 13% response. Lowest on the survey's raking of small-business woes were inflation and the cost and availability of credit.

The list of small-business concerns may be a lagging indicator, however. The percentage of respondents who report hard-to-fill job openings fell four points from October, to 28%, and the percentage of businesses paying higher wages dropped for the third straight month.

The overall outlook, says NFIB Chief Economist William Dunkelberg, in a commentary on the data, is positive -- despite the lack of qualified staff that's constraining small-company growth.

So where's the gloom of the Asian crisis in such a rosy picture? Look to falling exports and the manufacturing sector -- where employment is down.

By Julia Lichtblau in New York

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