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Small businesses' lament: Where are the customers?

October 12, 2010 |  5:40 pm

A gauge of small-business optimism inched up in September but remained stuck at levels typical of a “weak or recession-mired economy,” the National Federation of Independent Business said Tuesday.

And once again, small firms’ No. 1 complaint wasn’t about taxes, government regulation or financing; it was about the lack of customers coming in the door.

The NFIB’s optimism index added 0.2 of a point in September to 89.0, based on a survey of 849 small businesses nationwide.

The index had plunged to a record low of 81 in March 2009, then quickly rebounded to 88.9 two months later. Since then, however, it has mostly been stuck between 86 and 90, well below the range of 98 to 107 that is consistent with economic growth.

There were some signs of improvement in the September survey, including a rise in the number of businesses that expected conditions to improve in the next six months. Also, 6% of firms said now was a good time to expand, up from 4% in August -- but below the 9% of September 2009.

Halfoff On the downside, the firms that planned to boost employment in the next three months were outnumbered by those that anticipated cutting jobs, “an unexpected reversal in job creation prospects,” the NFIB said.

Also, September was the 22nd consecutive month in which more businesses reported cutting average  prices for their goods or services than raising them. That’s the kind of deflation that frightens the Federal Reserve.

For many firms, the biggest problem is that customers still are staying away either for lack of money or fear of spending it, the NFIB said.

Asked to list their “single most important problem,” 30% of businesses said poor sales. That was followed by taxes at 23%, then government regulation and red tape at 16%.

Most companies in the NFIB survey either said they didn’t have a problem getting financing or they didn’t need credit. “Overall, 91% of small-business owners reported that all their credit needs were met or that they were not interested in borrowing,” the group said.

The NFIB survey points up the vastly different prospects faced by many smaller firms compared with U.S. multinational companies.

Smaller businesses often are largely dependent on the domestic economy, which of course continues to struggle amid severe unemployment.

U.S. multinationals, by contrast, are benefiting from faster sales growth overseas. Computer chip giant Intel Corp. late Tuesday reported better-than-expected third-quarter earnings in part thanks to rising sales in the developing world, including China.

Intel has no sales problem: Its revenue last quarter topped $11 billion for the first time.

-- Tom Petruno

Photo credit: Justin Lane / EPA