Small-business optimism drops: National business group forecasts slow-but-steady growth in 2007, unlike torrid pace that kicked off last year

Small-business owners aren’t nearly as optimistic about 2007 as they were heading into last year, thanks to a slowing economy and lower spending rates, a report from the National Federation of Independent Business shows.

Still, many small businesses in Indiana and elsewhere expect to grow steadily and add to their work forces in 2007. In the next three months, 14 percent of small businesses plan to create jobs and 26 percent plan to make a capital expenditure, the NFIB says.

The Washington, D.C.-based businessadvocacy group, which has an Indianapolis chapter, uses a monthly survey of 10 components to compute its Index of Small-Business Optimism. Factors include plans to increase employment, capital outlays and inventories, along with expectations for the economy to improve, current job openings and earnings trends.

The index exceeded its 100-point baseline at the end of 2005 and maintained that level through early 2006, but has fallen to 96.5 to kick off 2007. About 450 small businesses were included in the most recent survey.

A separate NFIB forecast-extrapolated from the surveys and other economic indicators-calls for steady economic growth with modest inflation in 2007. And there is no sign of a recession ahead for small businesses, said NFIB Chief Economist Bill Dunkelberg.

“Things are not exuberant, but on the other hand the numbers are not signaling a major decline in economic activity,” he said.

Small businesses can expect “a solid, but boring year,” Dunkelberg said. In general, this year won’t provide the same jolt as 2006, which started especially strong.

But not every small-business owner is pessimistic about 2007. Jerry McColgin, president of Carmel-based product innovation firm Insight2, said his company plans to add as many as three positions in 2007 and is expecting a healthy jump in sales. And he’s optimistic about the economy.

“The companies we’re working with are spending more on innovation” in an attempt to gain a competitive advantage, McColgin said. Companies want to find ways to distinguish themselves and their products, since widespread outsourcing means few of them can maintain a cost edge over their competitors.

The nine-employee Carmel firm works with medium to large consumer-product companies to improve on items ranging from grills to paint-ball guns.

“We have aggressive growth goals,” McColgin said. “And when I look at what our first quarter shows, unless there’s a sudden unexpected dip, we’re well on our way.”

The problems facing small businesses in 2007 are familiar: taxes, potential new business regulations and the growing challenge of finding employees and insurance coverage.

Recruiting qualified people has been a top issue in the midst of record unemployment rates around 4.5 percent and as the percentage of adults with a job hovers in the range of 63 percent, the NFIB said.

Of small businesses that were hiring in the second half of 2006, more than 80 percent said they found few or no qualified applicants for their open positions. The scarcity has led to higher compensation, which could increase even more if a proposed minimum wage hike is approved.

One in 10 small-business owners surveyed said the availability of qualified employees is their most important business problem.

Some jobs are more difficult to fill than others. For Greenwood-based Pulse Creative Partners Inc., hiring a good Web designer took a little longer and required a higher salary than expected.

Designers are in demand, thanks to a push by more companies to make a Web presence part of their business plans, said company President Stefan Bean. Only a few applicants had the skills Pulse wanted.

But getting the right person was worth the wait for the three-employee company, which hopes to hire at least one person every year, Bean said.

“Around 10 people total will be the goal, which gives us the opportunity to stay personal with customers,” he said.

The company, which specializes in design, branding and Web site development, has been around for 20 years, formerly as Bean Graphics. Bean expects the growing base of Web work will help propel 25-percent revenue growth in 2007.

In December, 16 percent of small businesses reported adding an average of three employees, while 13 percent reduced their staffs by an average of two employees, the NFIB said. Forty-nine percent hired or tried to hire at least one employee.

At Avon-based A Bride’s Dream, a bridal shop and event-planning firm, owner Nancy J. Emans constantly struggles to find employees.

“It’s very hard to find people because I can’t pay competitively yet,” she said.

She started the company in October 2005 and has exceeded her sales goal every year. She works full time and plans to add two part-time employees to her four-person staff this year.

Emans already pays above the minimum wage. But if Congress approves a higher rate, it would affect other small businesses that employ many of the more than 10 million workers the NFIB said are making minimum wage.