Times may be improving, but small business' sense of that has sagged of late. The National Federation of Independent Business (NFIB) indicated that for the second consecutive month small business optimism slipped. The July decline from June to an index level of 86.5 was to the lowest level since March. Moreover, the latest figure was down slightly from last year though it remained well improved from the lows of this past winter.

During the last ten years, there has been a 49% correlation between the level of the NFIB index and the two-quarter change in real GDP.

The percentage planning to raise employment remained slightly negative and the percentage with one or more job openings slipped to just 9%, nearly the lowest since 1982. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.

Driving the cautious hiring was the falling percentage of small businesses expecting the economy to improve, back to its lowest level since March. The percentage expecting credit conditions to ease also remained in its recent range while the percentage reporting that now is a good time to expand business held in its modestly positive range of recent months.

During the next 3-6 months, plans for capital spending also remained range-bound but modestly positive. This weakness in investment reflects not only diminished optimism about the economic outlook but poor profits. Forty-five percent of firms are reporting lower earnings this quarter versus last.

The largest, single most important problems seen by business were poor sales (32%), taxes (22%), government requirements (12%), insurance cost & availability (9%), competition from large businesses (5%) and inflation (3%).

The percentage of firms planning to raise prices held at 5% and that was near the record low. The percentage of firms actually raising prices slipped and remained in negative territory, near the record low. During the last ten years there has been a 69% correlation between the y/y change in the producer price index and the level of the NFIB price index.

About 24 million small businesses exist in the United States. Small business creates 80% of all new jobs in America and the NFIB figures can be found in Haver's SURVEYS database.

Why Are Banks Holding So Many Excess Reserves? from the Federal Reserve Bank of New York can be found here.