Small Business Confidence Slips on Economic Fears

Proprietors of small businesses have become more pessimistic as their worries grow about whether business conditions will improve in the next six months, according to a survey released on Tuesday.

Paul Sakuma / AP

The National Federation of Independent Business said the index fell in July for the second straight month, dropping 1.3 points to 86.5.

"We kind of went flat and the main driver of that seems to be a loss in confidence about the economy," William Dunkelberg, the NFIB's chief economist, told CNBC in a live interview.

Small businesses produce half the private GDP, employ the bulk of the private sector work force and generate most of the new jobs created, and now face a plethora of proposed taxes: unemployment, gas, cap and trade, NFIB said.

"Now they are expected to finance the new experiments of Congress and the president such as healthcare reform, auto industry bailouts and union pension fund bailouts," Dunkelberg said.

"Even with good news on the economy, it's hard to be optimistic — and commit funds to the future — with these prospects facing small business owners," said Dunkelberg.

Only 5 percent of small business owners think now is a good time to expand their business, and more firms expect their real sales volumes to decline than grow, the group said.

The percent of owners expecting business conditions to deteriorate lost 10 percentage points from June, 15 points from May, this in spite of increasingly positive signs that the economy is improving, the group said.

"We're still not sure that things are going to get better," Dunkelberg said. "Because of that we're not willing to commit money for hiring much or for capital spending or for inventory rebuilding yet."

Plans to invest in inventory improved, but remained negative, with 5 percent more planning to reduce stocks rather than to increase them, NFIB said.

"The recession is wearing Main Street folks down," said Dunkelberg. "And unfortunately, lawmakers in Washington are doing more to scare small business owners than to reassure them of an economic recovery."

The current confidence numbers are consistent with a drop in gross domestic product of 1 to 2 percent, "not a good growth number," he added.

—Reuters contributed to this report.

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