The Index of Small Business Optimism lost 0.9 points in July and reached 88.1 following a sharp decline in June. The Index has been below 93 every month since January 2008 (31 months), and below 90 for 24 of those months, all readings typical of a weak or recession-mired economy. Ninety percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months.
The recovery in optimism that we are currently experiencing is very weak compared to recoveries after the 1982 and 1975 recessions,” said Bill Dunkelberg, NFIB’s chief economist. “The small business sector is not on a sustained positive trajectory, and with this half of the private sector missing in action, the economy’s poor growth performance is not surprising.”While this is disappointing news, it unfortunately gets worse. Small businesses expect economic conditions to decline over the next 6 months. As a result they do not expect to increase capital spending or hiring anytime soon. This is the definitive nail in the coffin to the jobs market because small businesses account for the majority of new job creation in the US. If they are not going to hire then no one is. Another troubling sign is that small businesses are reducing employee compensation, which means wage deflation for workers. Less income equals less consumer spending and starts a vicious spiral downward. Get ready for QE 2 by the Federal Reserve.
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