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TheStreet Open House

Small Business Optimism Falling

NEW YORK ( TheStreet) -- Small-business owner optimism fell for the third consecutive month in May, suggesting that the improvement seen in the sector in the beginning of the year may not be sustainable, according to a survey by the National Federation of Independent Business.

The NFIB's Small Business Optimism Index dropped slightly, by 0.3 points, to 90.9 in May, fueled by weak consumer spending. Lower spending is particularly problematic for the "services" sector, which is made up largely by small businesses, the NFIB says.

"Corporate profits may be at a record high, but businesses on Main Street are still scraping by. Washington is throwing misdirected policies at the problem, offering tax breaks for hiring and equipment investment, but acting surprised when they don't bear any fruit," said NFIB chief economist Bill Dunkelberg.

"The failure to understand why small-business owners are not hiring or investing has resulted in a set of policies that have not been very effective, and Main Street is suffering," Dunkleberg says. "The icing on the cake: the growing debt, large deficits, threats of higher taxes, regulations being spewed out by state and local administrations, and the uncertainty of the new health care law -- is it any wonder that optimism is down?"

The NFIB survey is based on the responses of 733 randomly sampled small-business members throughout May, the organization says.

The NFIB pointed to other key economic indicators that trended lower last month, including: deteriorating job market indicators -- weak job creation and a higher unemployment rate and weakened capital spending plans and inventory investment plans.

One in four owners still report weak sales as their top business problem, according to the survey. The net percent of owners expecting higher real sales fell two points to 3% (seasonally adjusted) - approximately 10 points below January's reading, the NFIB says.

Capital spending also remains historically low in spite of low interest rates and incentives, the NFIB says. The percent of owners planning capital outlays in the next three to six months dropped 1 point to 20%, a recession level reading.

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