Small-business owners pessimistic about economy

Small-business owners are continuing to lose faith in the economy, fearing it is more likely to deteriorate than improve.

The Small Business Optimism Index tumbled 0.9 points to 89.9 in July, the fifth consecutive month the index has declined, according to a survey released Tuesday by the National Federation of Independent Business.

“Small businesses have become considerably more pessimistic in their outlook since the beginning of the year,” said Chris Christopher, U.S. economist for IHS Global Insight. “Small-business optimism has soured. … This report is not good since small businesses are feeling the brunt of this sluggish economic recovery.”

These companies expect lower sales and do not think they can increase prices, Mr. Christopher said, a situation that adds to worries about taxes and government regulation.

The report also finds that the “prospect for job creation is bleak.” Fewer employers plan to increase hiring, while more plan to reduce their workforce.

The small-business survey was joined by more bad labor-market news in figures released Tuesday by the Labor Department that found workers were less productive in the spring for the second straight quarter.

The productivity rate slipped 0.3 percent from April through June, after dropping 0.6 percent from January through March. It’s the first time productivity has dropped in back-to-back quarters since the height of the Great Recession.

Labor costs also rose, according to the Labor Department survey, going up 2.2 percent in the spring quarter, on top of a 4.8 percent increase at the beginning of the year.

Costlier hiring translates into a gloomier job scene for workers even as the negative news about the economy continues to mount, with stock markets losing ground across the globe, worldwide sovereign-debt problems and fears that the United States is heading into a double-dip recession.

This is a “more severe” drop in small-business owners’ confidence than in recent months, Mr. Christopher said.

July’s decline was the biggest since March and puts the index at its lowest level since September.

“This does not bode well for small businesses since, unlike their big brothers, they are not awash in cash and cannot look toward export markets to keep their heads above these troubled waters,” Mr. Christopher explained. “The next couple of months will be extremely trying for small businesses.”