WASHINGTON (MNI) – The following is the text of the National
Federation of Independent Business’ monthly Small Business Optimism
index published Tuesday:

For the fifth consecutive month, NFIB’s monthly Small-Business
Optimism Index fell, dropping 0.9 points in July-a larger decline than
in each of the previous three months-and bringing the Index down to a
disappointing 89.9. This is below the average Index reading of 90.2 for
the last two-year recovery period. Expectations for future real sales
growth and improved business conditions were the major contributors to
the decline in optimism. With the repercussions of the debt compromise
yet unknown, next month’s report will provide a more complete picture of
the reaction on Main Street.

“Given the current political climate, the protracted debate over
how to handle the nation’s debt and spending, and the now this latest
development of the debt downgrade, expectations for growth are low and
uncertainty is great,” said NFIB Chief Economist Bill Dunkelberg. “At
the two year anniversary of the expansion, the Index is only 3.4 points
higher than it was in July 2009. And considering the confidence-draining
performance of policy makers, there is little hope that Washington will
stop hemorrhaging money and put spending back on a sustainable course.
Perhaps we might begin referring to the ‘Small-Business Pessimism Index’
from now on.”

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT 2 -1
PLAN TO INCREASE CAP. OUTLAYS* 20 -1
PLAN TO INCREASE INVENTORIES -3 0
EXPECT ECONOMY TO IMPROVE -15 -4
EXPECT HIGHER REAL SALES -2 -2
CURRENT INVENTORY SATISFACTION 0 1
CURRENT JOB OPENINGS* 12 -3
EXPECTED CREDIT CONDITIONS -11 -1
NOW A GOOD TIME TO EXPAND* 6 2
EARNINGS TRENDS -24 0

* Note: These components are measured as actual percentages of all
respondents and are not net percentages. A net percentage is the percent
positive minus percent negative.

The percent of owners citing poor sales as their top problem-the
long-time primary complaint of firms-has faded a few points, and reports
of sales trends are much better than a few months ago. However, the July
survey anticipates slow growth for the remainder of the year, high
unemployment rates, inflation rates that are too high and little
progress on job creation.

Some other highlights of July’s Optimism Index include:

* While the national unemployment rate dipped marginally, for the
nation’s small businesses, the employment story is not a positive one.
Twelve percent (seasonally adjusted) reported unfilled job openings,
down 3 points. Over the next three months, 10 percent plan to increase
employment (down 1 point), and 11 percent plan to reduce their workforce
(up 4 points), yielding a seasonally adjusted 2 percent of owners
planning to create new jobs, 1 point lower than June, leaving the
prospect for job creation bleak.

* The net percent of all owners (seasonally adjusted) reporting
higher nominal sales over the past 3 months lost 1 percentage point,
falling to a net negative 8 percent. Currently, there are more firms
with sales trending down than there are with sales trending up, however,
this indicator is the third best reading in 42 months. The unadjusted
numbers are: 29 percent of all owners reported higher sales (last three
months compared to prior three months, up 2 points) while 28 percent
reported lower sales (down 3 points).

* Reports of positive earnings trends were unchanged at a net
negative 24 percent of all owners, while not high, is the best reading
in 43 months. Not seasonally adjusted, 20 percent reported profits
higher (up 2 points), and 38 percent reported profits falling (down 3
points). Corporate profits are at a record high level as a share of GDP,
but these increased have not translated to Main Street, where even among
the most optimistic of sectors, small manufacturing firms, only 23
percent reported higher earnings while 37 percent reported lower profits
(not seasonally adjusted).

* The frequency of reported capital outlays over the past six
months was unchanged at 50 percent of all firms; a stubbornly weak
reading throughout the recovery. Low interest rates and expensing
incentives do not appear to be enough inspiration to spur investment.
The percent of owners planning capital outlays in the next three to six
months fell 1 point to 20 percent, a recession level reading that has
typified the recovery to date. While money is available to borrow, most
owners are not interested in a loan to finance the purchase of equipment
they will not need until there is marked economic improvement.

* The net percent of owners expecting better business conditions in
six months was a negative 15 percent, down 4 points and 25 percentage
points lower than January. A path to economic recovery is clearly not
visible to many small-business owners.

** Market News International Washington Bureau: 202-371-2121 **

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