WASHINGTON (MNI) - The following is the text of the National Federal of Independent Business summary of its Small Business Optimism index, published Tuesday:

The National Federation of Independent Business Index of Small Business Optimism lost 0.3 points in December, falling to 88.0 (1986=100). The Index is seven points higher than the survey's second lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980) and has been below 90 for 15 months. Optimism has clearly stalled in spite of the improvements in the economy.

"2009 was a very difficult year for small business," said NFIB Chief Economist William Dunkelberg. "Continued weak sales and threatening domestic policies from Washington, have left small business owners with little to be optimistic about in the coming year."

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT -2% +1 PLAN TO INCREASE CAP. OUTLAYS* 18% +2 PLAN TO INCREASE INVENTORIES -8% -5 EXPECT ECONOMY TO IMPROVE 2% -1 EXPECT HIGHER REAL SALES -1% +1 CURRENT INVENTORY SATISFACTION -4% -2 CURRENT JOB OPENINGS* 10% +2 EXPECTED CREDIT CONDITIONS -15% 0 NOW A GOOD TIME TO EXPAND* 7% -1 EARNINGS TRENDS -43% 0

* Note: These components are measured as actual percentages of all respondents and are not net percentages. A net percentage is the percent positive minus percent negative.

Employment

Ten percent of the owners increased employment (the highest reading of 2009), but 22 percent reduced employment (seasonally adjusted).

"While the trend for increased employment is going in the right direction," said Dunkelberg, "there is no indication that job growth will be strong enough to dramatically reduce the unemployment rate."

Ten percent (seasonally adjusted) reported unfilled job openings, up two points from November, a good sign. Over the next three months, 15 percent plan to reduce employment (down two points), and 8 percent plan to create new jobs (up one point), yielding a seasonally adjusted net-negative 2 percent of owners planning to create new jobs, a one-point improvement from November.

Capital Spending

The frequency of reported capital outlays over the past six months was unchanged at 44 percent of all firms, holding at a record low level (data first collected in 1979). Plans to make capital expenditures over the next few months rose two points to 18 percent, two points above the 35-year record low.

"Capital spending is on the sidelines. Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects." said Dunkelberg.

Inventories and Sales

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 25 percent, but this is a six-point improvement over the November reading. The net percent of owners expecting real sales gains improved one point to a negative 1 percent of all owners, still negative, but 30 points better than Marchs record low of negative 31.

"Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks," said Dunkelberg.

A net negative 28 percent of all owners reported gains in inventory stocks, a new monthly record. For all firms, a net-negative 4 percent (a two point deterioration) reported stocks too low, so stocks are still considered a bit excessive relative to expected real sales volumes (which are weak).

Inflation

Ten percent of the owners reported raising average selling prices, but 33 percent reported price reductions yielding a net-negative 22 percent (seasonally adjusted) of owners who cut prices in December. Plans to raise prices fell one point to a seasonally adjusted net 3 percent of owners, 35 points below the July 2008 reading.

"The weak economy continued to put downward pressure on prices, said Dunkelberg. "Widespread price cutting contributed to the reports of lower nominal sales."

On the cost or input side, the percent of owners citing inflation as their number one problem (e.g. costs coming in the "back door" of the business) fell two points to 2 percent, and only 3 percent cited the cost of labor.

Earnings

Reports of positive profit trends were unchanged at a net negative 43 percentage points. For the 54 percent reporting lower earnings compared to the previous three months, 65 percent cited weaker sales, 4 percent each blamed rising labor costs, higher materials costs and higher insurance costs, while 6 percent blamed lower selling prices. Poor real sales and price cuts are responsible for much of the weakness in profits.

"The persistence of this imbalance is bad news for the small business community," said Dunkelberg. "Profits are important for the support of capital spending."

Owners continued to reduce compensation at a record pace, with 10 percent reporting reduced worker compensation and 9 percent reporting gains, unchanged from November.

Credit

Regular borrowers (accessing capital markets at least once a quarter) continued to report difficulties in arranging credit at the highest frequency since 1983. A net 15 percent reported loans harder to get than in their last attempt, unchanged from November.

"Still that is not nearly as severe as the financial distress reported in the pre-1983 period," said Dunkelberg. "Twenty-four months of recession have sapped the financial strength of many small firms."

Thirty-three percent reported regular borrowing, fairly typical of post-1983 and unchanged from November. Eight percent of all owners reported that their borrowing needs were not satisfied, down two points from November. The remaining 92 percent of all owners either obtained the credit they wanted or were not interested in borrowing. Only 4 percent of the owners reported finance as their number one business problem (down one point).

** Market News International Washington Bureau: 202-371-2121 **