Amidst anemic consumer spending and national uncertainty over the fate of the debt ceiling, small-business optimism declined for the fifth straight month in July, as independent business owners acknowledged that they don’t expect the economy to improve any time soon.
Small-business owners cited "economic conditions" and "political climate" as reasons for their relative pessimism, likely a reference to the gridlock over the federal deficit that consumed Washington in July.
The drop in the Small Business Optimism Index, a monthly report published by the National Federation of Independent Business, mirrors a nationwide atmosphere of trepidation that has also resulted in shrinking consumer confidence and massive sell-offs on Wall Street.
The Index fell 0.9 points in July, dropping to a level of 89.9, according to a release Tuesday from the NFIB. Pessimists outnumbered optimists on a number of scores. There were more small-business owners predicting the economy would be worse six months from now, for example, than those saying it would be better.
Bill Dunkelberg, chief economist at the NFIB, said in a statement that it might be time to “begin referring to the ‘Small-Business Pessimism Index’ from now on.”
On the whole, small-business owners were also more likely to predict their sales would be lower over the next three months, and that it would become harder to get credit. While 10 percent of respondents said they planned to increase their workforce in the next three months, another 11 percent said they planned to eliminate jobs.
The survey results suggested that Main Street feels constrained by its relationship with the government. While “poor sales” were the single most-cited problem in the survey, “taxes” and “government regulations and red tape” came in second and third, respectively.
In addition, when asked about the single most important problem they faced, respondents were twice as likely to name regulation as inflation, insurance, or competition from big business.
Last week, the NFIB launched Small Businesses for Sensible Regulations, an initiative aimed at taking regulatory pressure off independent businesses. The campaign has attracted representatives of businesses in six states.
Other economic factors are contributing to the difficult climate for independent business owners. Weak GDP, sluggish housing and stubbornly high unemployment, as well as market panic following a downgrade of the U.S. credit rating by Standard & Poor’s, have Americans worried that the country could be pointed toward a double-dip recession.
The debt-ceiling negotiations in Washington, which stretched throughout the month of July before resolving with an August 2 deal, had an especially detrimental impact on small-business sentiment.
Caught between a government unable to agree on the best way to expand the economy, and nervous consumers reluctant to make discretionary purchases, small business owners are feeling the squeeze as much as anyone.