Small Business Confidence at Lowest Since 1980

Small business owner confidence in the U.S. economy deteriorated to its lowest in 28 years, according to a survey released Tuesday.

The National Federation of Independent Business said its index of small business optimism fell 2.2 points in May to 89.3, the lowest reading since 1980, when the index plunged as a recession hit.

"The current low readings, however, have not been accompanied by the declines in real spending and hiring as was the case in past recessions," said William Dunkelberg, NFIB's chief economist.

"Expectations are relatively more depressed in the current low index readings, thus an economy that is slow, but not experiencing negative growth," said Dunkelberg.

The weak economy does not seem to be helping on the inflation front, the group said. The number of owners citing inflation as their number one business problem is up 3 points to 17 percent, the highest reading since 1982.

The job market will also be weak, the NFIB said. Over the next three months, only 2 percent of the owners surveyed plan to create new jobs, down 3 points from April.

Regionally, hiring plans are weak in many parts of the South and in the "auto belt," the group said.

Demand for credit has weakened as fewer businesses plan expansions or other capital expenditures in a slow-growth economy, NFIB said.

"Clearly lower rates are not stimulating capital spending, which has drifted lower as the Federal Reserve has cut rates," Dunkelberg said. "Unfortunately, the rate paid to savers has also declined as the Fed cut rates."

The Fed has lowered its benchmark overnight borrowing rate by 3.25 percentage points since mid-September to try to halt a sharp slowdown in an economy hit by a housing slump and a credit crunch.