Optimism among small-business owners has fallen for the second month in a row, according to a survey by the National Federation of Independent Business, mainly due to a decline in expectations that business conditions would improve in six months.

The percent of owners expecting business conditions to deteriorate lost 10 percentage points in July from June, and 15 points from May, in spite of increasingly positive signs that the economy is improving. “Nineteen months of recession are wearing heavily on Main Street,” said NFIB chief economist Bill Dunkelberg in a statement.

Lethargic expectations, not much faith in a future dominated by lawmakers in Washington, D.C., and trillion-dollar deficits all contributed to small-business owners’ deteriorating expectations.

Plans to create new jobs lost two points in July on the NFIB’s monthly survey, falling to a net negative 3 percent. The proportion of firms with unfilled job openings lost ground as well, falling two points to 9 percent of all owners.

Plans to make capital outlays did gain a point, rising to 18 percent of all firms, but remained among the lowest levels in the survey’s history of over 35 years. Plans to invest in inventory improved, but remained negative, with 5 percent more business owners planning to reduce their stock, rather than increase it. A net 27 percent reported inventory reductions for the fourth month in a row, a record pace of reductions. More firms have reduced stocks than increased them for 26 months, before the recession officially started.

Profits are terrible, with those reporting declines outnumbering those reporting gains by 45 percentage points, two points shy of the worst reading on record, in January 2009. That was mainly due to both poor sales — with reports of declining sales exceeding reports of gains by a record 34 percentage points — and extensive price-cutting. Those businesses cutting prices outnumbered those raising prices by 19 percentage points, two points more than in June.

Thirty-two percent of business owners reported that weak sales were their No. 1 business problem. Taxes received 22 percent of the vote, while financing received 4 percent, and inflation received only 3 percent.

Only 5 percent of small-business owners think now is a good time to expand their businesses, and more firms expect their real sales volumes to decline than grow, by 11 percentage points. Job reductions have been cut almost in half, but there are still more reductions than new hires. Only 12 percent of the business owners surveyed reported raising worker compensation, a point above the 35-year record low, while 10 percent reported reducing worker compensation, two points below the record high reached in June.

Credit markets remain dicey, with 15 percent of the businesses surveyed reporting that loans were harder to get in the current period than in the prior quarter, similar to the pattern observed in each boom and recession since 1983. Regular borrowing activity was reported by 33 percent, so there was no spike in borrowing activity that would signal increasing distress. Twenty-eight percent of the business owners surveyed reported that all their credit needs had been met (down two points), and 10 percent reported that their needs had not been met. The average interest rate paid on short-term loans was 6.5 percent.

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