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NewBiz: Small Biz Outlook Brighter, But Still Spotty
Sat October 18, 2003 08:07 AM ET

By Samuel Fromartz

WASHINGTON (Reuters) - Merrily Orsini, the founder of a small marketing and strategic planning company, sees better days ahead. Even though her Louisville, Kentucky-based company, My Virtual Corp., which offers on-demand experts for a variety of tasks, grew despite the economic slump, she says she is now getting more contracts."People are spending more money again, although not huge amounts, and the time between an inquiry and a purchase is shorter," said Orsini, who also uses freelance contract workers.

Her views were borne out on Wednesday by a poll of small business owners, which found that optimism in September was just slightly below August's two-decade high.The National Federation of Independent Business said its index of small business optimism was at 101.9 in September, down from 104.7 in August."The index loss is not a surprise -- it's tough to set new records," William Dunkelberg, chief economist of the NFIB, a Washington-based small business group, said in a statement.

Dunkelberg noted that the index has reliably anticipated every growth period since the 1974-1975 recession and that seems to be the case right now."The last six months' readings are sending a very clear signal -- economic activity is on the way up," he said.

The figures reinforced a sense that the economy was on the mend, although the unemployment rate remains stubbornly stuck at 6.1 percent. Last week, corporate CEOs at an annual retreat gave an upbeat assessment, with about two-thirds predicting their profit margins would grow in 2004. So far, they have sought to protect profits by cutting labor costs, but now they expect to see an increase in sales.

The September small business survey also found tepid interest in new hires, while sales had their second-highest reading in the last year. "Even with sales rising more quickly, firms are not hiring new staff to handle the business," the survey found.

A small business is defined as having fewer than 500 employees, though many employ fewer than 20. Fred LeFranc, CEO of Ruby's Diner Inc. -- a national chain with 38 restaurants, hovering on the edge of "small" -- said he saw a noticeable jump in sales in the past week. "We had phenomenal sales, up 9.4 percent," he said.

While that may be due to the rebounding economy, LeFranc said diners have flocked to Ruby's, headquartered in Newport Beach, California, because of an average check of $8.50 a person. "Fast, casual" dining places have gained even as more expensive establishments have suffered.

But on another front, capital spending still has not picked up strongly, especially in the highly competitive technology business. As the NFIB survey reported, "capital spending is not surging, but it keeps chugging ahead." Edy Bedoya, who runs EBC Computers Inc., a PC and computer parts retailer in Salt Lake City, said he has not seen any signs of increasing demand.

Bedoya, whose company grew with the double and triple digits in the 1990s, said this is the first year he will break even or have a loss. "Everybody's still buying, just not as much," he said. "A company that used to buy three or four new systems a year is now coming back and just buying a memory upgrade."

He attributed weak demand to the economic climate in Salt Lake City. "You used to wait on line for an hour to get into a restaurant. Now there aren't any lines," he said.

(Samuel Fromartz writes about entrepreneurs and emerging companies from Washington, DC, and welcomes stories about young companies. He can be reached at www.fromartz.com. Any opinions here are his own.)

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