Small businesses are optimistic about employment this year and intend to create over 36,000 jobs, according to the Small Firms Association (SFA).

The 10th annual SFA employment survey found that small businesses were focused on investment and expansion this year. The SFA predicted they would create 36,238 new jobs in 2004 as demand for labour increased. Last year they created 17,420 new jobs.

The organisation described this as a "remarkable turnaround from 2003 when employment prospects dropped to a 10- year low".

The survey found that 46 per cent of companies had vacancies now and 63 per cent of companies were more likely to expand business in 2004. However, 55 per cent of companies cited lack of skills as a problem in creating jobs.

The director of the SFA, Mr Pat Delaney, said the results confirmed that the prospects for employment creation were improving and the mindset of small business was now firmly on investment and expansion.

"These results reverse a five-year trend of falling labour demand and demonstrate that small business will respond to more positive market conditions. A benign budget, lower interest rates, some wage moderation and lower inflation have all contributed to putting small business back into a mindset of investment," said Mr Delaney

He added: "The survey shows that although the labour market is now less rigid, companies continue to be hindered by lack of skills. Wage expectations have begun to moderate since 2003 and 46 per cent of companies have current vacancies. Over the past year 19 per cent of companies have made staff redundant but that figure is set to fall to 8 per cent overall this year, although the figure is higher in the manufacturing sector at 12 per cent".

He said many sectors were enjoying good fortune, but the manufacturing and retail sectors were most exposed to competitive challenges.

The survey was carried out in the first quarter of 2004 and 1,055 (30 per cent) companies responded. The sample was drawn from manufacturing, distribution, retail and services sectors and from a regionally representative sample.

The demand for skilled labour among respondents increased to 21 per cent of companies in 2004 compared to 17 per cent in 2003. However, lack of skills was cited by 55 per cent of respondents as a challenge to filling vacancies.

The retail sector reported the largest cut in recruitment, with only 39 per cent of companies seeking to recruit compared with 48 per cent the previous year.

Mr Delaney said the results suggested "we have turned a corner in terms of job creation".

"The main challenge will be to maintain existing jobs and reduce the record levels of redundancies which have blighted the Irish economy over the past two years. If we create over 36,000 new jobs we have to ensure that we don't lose another 27,000 as we did last year. In 2003 the economy shed 500 jobs every week and already in 2004 we have lost over 4,600 jobs."