U.S. Small-Business Optimism Index Rose in January (Update1)

The gauge climbed to 89.3, the highest level in 16 months, from 88 in December, the Washington-based organization said today. The advance left the measure close to the 2009 low of 81 reached in March, which was second only to a 1980 reading as the lowest on record.

Three of every 10 companies surveyed said a lack of sales remained their biggest concern even as the demand outlook turned positive for the first time since January 2008, the month after the recession began. A majority of small businesses expect profit and employment to decline, showing why the Obama administration has announced new plans aimed at providing credit and tax breaks to small firms.

“This is very disappointing for an indicator of the health of the most critical segment of the economy in terms of new job creation,” said Joshua Shapiro , chief U.S. economist at MFR Inc. in New York.

The world’s largest economy lost 20,000 jobs in January, bringing the decline in payrolls since the recession began to 8.4 million, according to figures issued by the Labor Department last week. The jobless rate unexpectedly dropped to 9.7 percent, down from a 26-year high of 10.1 percent reached in October.

sales prospects

Seven of the index’s 10 components rose lost month, led by the increase in sales prospects and a reduction in the number of companies planning to cut stockpiles. More business leaders also said their inventories were too low and more planned to increase spending on new equipment.

A decline in the net number of companies that said it was a good time to expand, and in the number that anticipated better business conditions in the next six months restrained the index.

“The good news was less bad news,” William Dunkelberg , chief economist at the NFIB, said in a statement. “Optimism has clearly stalled in spite of the improvements in the economy in the second half of 2009.”

Among small businesses cutting back is Phoenix Technologies, a maker of computer-communications software. Revenue fell 10.3 percent to $15.6 million in the most recent quarter from the year-earlier period, the Milpitas, California- based firm reported Feb. 4. The company, which has a market value of $110 million, cut 9 percent, or about 45 people, from its workforce last year; it had 462 employees as of Sept. 30, according to data compiled by Bloomberg.

Small-Business Loans

President Obama last week announced he will back a temporary increase in Small Business Administration loans to $1 million from $350,000 to encourage hiring. He has previously endorsed $33 billion in small business tax cuts and incentives for hiring as well as a plan to use $30 billion of bailout money paid back by Wall Street financial institutions to help community banks make loans to small businesses.

Such aid is “misdirected,” NFIB’s Dunkelberg said in the statement, because the top problem for small business leaders is weak demand rather than a lack of credit. Stimulus therefore should focus on reviving consumer spending, he said.

The NFIB report was based on 2,114 survey responses through Jan. 31. Small businesses represent more than 99 percent of all U.S. employers and have created 64 percent of all new jobs in the past 15 years, according to the U.S. Small Business Administration.

To contact the reporters on this story: Carlos Torres in Washington ctorres2@bloomberg.net ; Michael McKee in New York at mmckee@bloomberg.net