Small business optimism ticked upward for the fourth month in a row in December, according to the National Federation of Independent Business.

The NFIB Optimism Index rose 1.8 points to 93.8 as small business owners worried a little less about the economy. However, the NFIB cautioned that it saw similar gains about a year ago and those were later offset by more pessimistic sentiments.

“Much of December’s gain resulted from the fact that concerns about business conditions over the next six months have subsided and because many small-business owners have improved their expectations for real sales gains in the coming months,” said NFIB chief economist Bill Dunkelberg in a statement. “But make no mistake: the economic winter is still here. Similar gains in the early part of 2011 quickly faded, and the Index is still well below where it should be at this point in the recovery. The economy appears to be slowly recovering, resolving imbalances in debt, housing and the like. But, it is unlikely that growth will be much better than 2011 even with a solid fourth quarter GDP growth. There is still a lot of work to be done.”

While the NFIB Index has gained 5.7 points over the last four months with several indicators posting notable gains, the total reading is still in recession territory. The NFIB Index is still 6 points below the pre-recession average and more than 10 points below the same point in the recovery from the 2001 recession. The gains in the index support the view that economic growth will pick up in 2012, but nothing dramatic will happen. The level of the index is consistent with weak growth.

Still, there were some other positive results to report in the NFIB’s survey of business owners. Reports of positive earnings trends were 6 points better in December at a net negative 22 percent of all owners.

The improvement in retail sales gave some owners a needed boost. Not seasonally adjusted, 16 percent reported profits higher (up 2 points), and 37 percent reported profits falling (down 3 points). Still, profits showed a dismal performance historically.

Fifteen percent of the small business owners, on a seasonally adjusted basis, reported hard-to-fill job openings, down 1 point but the second highest reading in 39 months. Over the next three months, 9 percent plan to increase employment (down 2 points), and 8 percent plan to reduce their workforce (down 3 points), yielding a seasonally adjusted net 6 percent of owners planning to create new jobs. This is a 1 point decline from November but still one of the strongest readings for 2011 and the second highest reading since September 2008.

Forty-five percent of the business owners surveyed said they hired or tried to hire in the past three months, but 34 percent of them reported few or no qualified applicants for the open positions. The NFIB unemployment forecast models (based on reports of poor sales or on job openings and plans to increase employment shown below) indicates that the unemployment rate will drift into the mid to low 8 percent range in 2012.

Sales remain a problem for many small businesses. The net percent of all owners, seasonally adjusted, who reported higher nominal sales over the past three months gained 4 points, rising to a net negative of 7 percent, indicating that there are still more businesses with sales trending down than those that are seeing their sales trend upward. In spite of reports of improving retail sales in the fourth quarter of 2011, 23 percent of owners reported “weak sales” as their top business problem.

However, expectations for future sales have improved, with the net percent of small business owners expecting higher real sales. This indicator gained 5 points in December, for a net 9 percent of all owners, on a seasonally adjusted basis. December’s increase builds on the 8 point improvement in November, but remains 4 points below January 2011’s reading. Not seasonally adjusted, 25 percent expect improvement over the next three months (up 1 point) and 34 percent expect declines (down 5 points).

The frequency of reported capital outlays over the past six months rose 3 points to 56 percent, the third monthly increase in succession after vacillating between 44 and 52 percent since December 2008. The record low of 44 percent was reached most recently in August 2010. Overall, the spending picture has improved, but still far short of “normal.” The percent of owners planning capital outlays in the next 3 to 6 months held at 24 percent, the highest reading in 40 months, also reached in March and November of this year.  Money is available, but most owners told the NFIB they are not interested in a loan to finance the purchase of equipment they don’t need.

Access to credit continues to rank at the bottom of concerns, with only 4 percent reporting financing as their No. 1 business problem. Ninety-three percent of the small business owners surveyed reported that all their credit needs were met or that they were not interested in borrowing. Seven percent reported that not all of their credit needs were satisfied, the record low is 4 percent, reached in 2000. Fifty percent said they did not want a loan or 64 percent if including those who did not answer the question, presumably uninterested in borrowing as well.

While weak sales remain the top business problem, lack of demand for credit will likely continue. Thirty-one percent of all owners reported borrowing on a regular basis, down 3 points. A net 8 percent reported loans “harder to get” compared to their last attempt, for a drop of 2 points. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 9 percent (more owners expect that it will be “harder” to arrange financing than easier), a 1 point improvement over November.

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