Small Biz Owners' Economic Outlook Improves

But they are skeptical that the economic stimulus package will help them.

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Nearly everyone seems to be feeling worse about the economy these days. One surprising exception, however, is small-business people. Their assessment of economic conditions actually improved in February, for the first time in over six months, according to the Discover Small Business Watch survey released this week. Perhaps not coincidentally, Congress this month passed a stimulus package aimed at improving small business's economic prospects with a new tax deduction. Did the plan have its desired effect of boosting business owners' confidence and spurring investment?

The Discover survey, which polled 1,000 small-business people across the nation at random, found that 67 percent feel that economic conditions are getting worse. That may sound as if they're pessimistic, but it's still a move in a positive direction: It's down from 74 percent in January, which was a big jump from 65 percent in December. It's also the first time their economic outlook has improved in the monthly survey since July 2007, perhaps signaling the beginning of a positive trend. "Small-business owners are seeing some of the larger efforts being made to improve the economy," says Sastry Rachakonda, director of Discover's business credit card.

Another indicator on the rise was the number of small-business owners who said they plan to increase business development activities over the next six months, up to 33 percent from 28 percent last month. One portion of Congress and the White House's stimulus package was a $250,000 tax deduction on new equipment purchases made in 2008 that applied only to small businesses, so they could start making new investments right away.

But even if small businesses are more willing to invest in this weak economy, it's not clear that the stimulus provision is making them move. Only 12 percent of business owners in the Discover survey expected the stimulus package to have a significant impact on them, while 59 percent said it wouldn't. "That doesn't surprise me a bit," says Jeff Cornwall, who studies entrepreneurship at Belmont University. "People are going to make decisions about their business because they're going to make decisions about their business. Most small-business owners don't really understand how the tax implications would affect their business."

Of course, that doesn't mean that the stimulus package will never have an effect. It could be that small-business owners have not realized how much cheaper it is to make investments this year with the new deduction in place. "Once people start understanding the stimulus and what it means to go out and buy more equipment, I think it will start to change their views," says Molly Brogan of the National Small Business Association.

Why else might America's small-business people and entrepreneurs have a brighter outlook? One reason could be that they're just not feeling the economic weakness stemming from the housing crisis. "A lot of people's outlook about the economy is psychological," Cornwall says. But at least for small businesses, that psychology might be changing, he says. "When the economy keeps chugging along, small-business owners are going to start to shape their attitudes based on their own reality rather than what they're hearing in the public media."