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Small Business Optimism Fades Three Straight Months

U.S. small businesses spirits faded in July as owners reined in plans to create jobs and for capital spending, according to a survey released Tuesday.

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The National Federation of Independent Business Index said its index of small business optimism fell for the third straight month, slipping 1 point to 88.2, with half the decline due to weaker capital spending plans.

Plans to make capital spending over the next few months fell 5 points to 21 percent, the weakest reading since the 1970s, the NFIB said.

"Getting a discount on loans or the purchase price of equipment is not sufficient to stimulate much spending if the equipment isn't needed to serve customers," said NFIB Chief Economist William Dunkelberg.

Over the next three months, 5 percent of the owners plan to create new jobs, unchanged from June, the group said. Ten percent of the owners reported that the availability of qualified labor was their top business problem.

While owners are holding fewer inventories, the widespread cutbacks "have not produced increased satisfaction because sales have also weakened, reducing the need for more inventory in the near future," NFIB said.

"Although small business owners heeded Fed warning about a possible recession, they didn't get the memo explaining how the weak economy moderates inflation," Dunkelberg said.

The percent of owners citing inflation as their No. 1 problem remained at 20 percent, the highest since January 1982 and higher than any other concern, NFIB said.

"The inflation problem is getting worse, not better," Dunkelberg said.

The NFIB said there is no evidence of serious credit problems and it remains a Wall Street issue. Regular borrowing activity was reported by 34 percent of the owners, down a point from June and typical for the past 15 years.

"There is no evidence that there are cash flow problems that have increased dependence on credit from the banking system," Dunkelberg.

Only 3 percent of the owners cited the cost and availability of credit as their number one business problem, up one point from June.

The results are based on 1,827 respondents to the survey of 10,799 members who were polled through July 31.