You can forgive entrepreneurs their pessimism about the economy, though it may well be misplaced.

While the rest of 2008 looks a bit rough, and the fire sale of Bear Stearns to JPMorgan Chase has the doomsters swapping the 'R-word' for the 'D-word,' the darkest clouds may be lifting on the horizon, even if flat growth--or worse--is already here. Better still, Congress is giving small-business owners an investment tax break on top of the $168 billion stimulus package it is preparing for consumers.

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How much will those two measures stimulate spending and investment? The answers differ by region and industry. For instance, as conditions soften in New England (thanks to cutbacks at big banks stung by the credit crisis), economies in the West South Central region (buoyed by energy companies) are still chugging along.

Analysts at PNC Bank estimate the stimulus package will boost gross domestic product by 0.5 to 0.7 percentage points in the final three quarters of the year. That could be enough to push US economic growth for the full year to 1.3 per cent to 2 per cent, the Federal Reserve forecasts. (PNC forecasts 0.7 per cent.)

Business and consumer spending
Psychology might play as big a role as any, increasing the willingness of individuals and business customers to loosen their purse strings.

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Household spending, which accounts for 70 per cent of US GDP, held up well until the end of last year, turning flat in December after having grown at a solid 2.2 per cent clip during the previous three months.

What matters now is how consumer confidence holds up in the near term, especially in the face of a more uncertain unemployment outlook, with more small businesses notably reporting cutbacks in hiring plans.

Capital investment, too, is likely to grow less robustly this year than last, as firms expect the cost of that capital to rise at a time when demand for their products is uncertain. But, as Jeffrey Lacker, president of the Federal Reserve Bank of Richmond noted last month, while there are some signs that investment is slowing, the most recent monthly indicators still suggest some forward momentum.

Availability of credit
Entrepreneurs can only hope their bankers will continue to accommodate.

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For small fry, the cost of money isn't the issue--it's the availability. Even creditworthy borrowers find their bankers continuing to be loan-averse as the credit crunch wears on.

So far, evidence of tightening credit standards for small business remains anecodatal, although the worry about it among owner-managers is real. The niggling concern is that Bear Stearns will prove to be prologue--rather than epilogue--to the credit crunch.

The degree to which credit availability is a problem to small-business owners varies from industry to industry. Anything housing-related is tough--bad news for entrepreneurs who use the equity in their homes to finance their business. But exporters and high-end luxury businesses, for example, are not reporting significantly more difficulty in getting the credit they need.

The overall picture is mildly gloomy. A survey published in February by credit card issuer Discover Financial Services found 43 per cent of small businesses with fewer than five employees had experienced cash flow issues over the previous 90 days--but that was little changed from the level of the past several months. The same monthly survey also found the first up-tick in confidence by small-business owners since last July.

Inflation
While falling real estate markets and rising inflation are likely to provide the mood music well into 2008, inflation is the more serious concern for small business.

The Federal Reserve's favored inflation measure--core inflation, which excludes volatile energy and food prices--is already too high for its comfort and is forecast to hit 2 to 2.2 per cent this year. Headline inflation is forecast to hit 3.5 per cent for the full year.

At some point, the Fed will switch its focus from forestalling recession to reining in inflation and mopping up the emergency liquidity it has injected since last summer. The Federal Funds rate, now at 3 per cent, might dip another full percentage point before that happens. But long-term interest rates--which have more of an impact on the rates banks charge for small-business loans--will not fall nearly as much. PNC forecasts prime rates to average 5.4 per cent for the year.

Energy and food prices are important to small businesses as well. Recent spikes in crude oil prices are now inflating transport and utility bills, while the sharp rise in agricultural commodities is working through the food-industry supply chain. Sadly, the tight balance between global supply and demand for oil shows little sign of easing this year; thus, prospects are dim prospects for energy prices receding anytime soon.

The US dollar
The further weakening of the dollar is one reason commodities of all stripes have risen in price. The brighter side of that coin for export-related businesses is that their products become more competitively priced in overseas markets, where growth is still robust.

Exports will likely be the driving force of the recovery in the second half of 2008. For many entrepreneurs, export markets will be the new frontier.