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Small Business Confidence Hits 3-Year High

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Small business confidence edged up in February to its highest level since the beginning of the Recession, according to a report released on Tuesday by the National Federation of Independent Business, a Washington-based advocacy group.

But while the slight up-tick in confidence pushed NFIB's Small Business Optimism Index to a three-year high, it was not significant enough to signal a shift into "second-gear economic growth," says the NFIB.

The confidence level amongst small business owners remains well below its 2001-2007 average, the NFIB reports, with only 9 percent of the companies reporting that they believe business conditions will improve over the next six months.

One bright spot in the NFIB report is the increase in small business hiring plans. Five percent of the 776 small companies surveyed said they planned to hire, up from three percent in January. This follows the Bureau of Labor Statistic's employment snapshot, which shows unemployment falling to 8.9% with 192,000 jobs added to the U.S. economy in February.

Still, small companies are reporting more unfilled job openings. And the absence of workers to fill expanding payrolls suggests a more deep-seeded problem: unemployed workers have less mobility to follow jobs due to the depressed housing market.

"If you're own a homeowner right now, you might find a job in another area, but it's too hard to sell your house. This is putting a damper on getting skilled labor to different areas," says Chris Christopher, a senior economist at ISH Global Sights, an economic data firm.

Aside from the jobs data, the NFIB's survey shows that more small businesses are planning to raise their selling prices. Not since October 2008 has such a high percentage of small firms surveyed by the NFIB reported plans to hike prices. So what's triggering these plans?

In February, small businesses may have thought that their pricing power had risen to such a level that they could raise prices without losing customers. As such, the NFIB's most recent report declares the end of the "spectacular period of price cutting in the small business sector."

But in March, small business owners are halting price cuts, and considering hikes, not because the perception that consumer consumption is rising, but because the surging cost of fuel is boosting their transportation costs and putting downward pressure on their profits.

"Eventually, small firms will pass these costs along to customers," says Chris Christopher.

As the Huffington Post reports, surging oil prices caused by the escalating violence in Libya has already hit Main Street.

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