The National Federation of Independent Business reported that its Small Business Optimism Index strengthened to 95.4 during July after falling to an unrevised decline to 94.1 in June. The reading was the lowest since September of last year.

The percentage of firms expecting the economy to improve recovered slightly to -4 but remained down from the November high of +13%. The percentage of firms expecting higher real sales in six months (6%) also was down from 16% six months ago. Twelve percent of firms were looking to increase employment, up from the 9% June low. Discouragement about the labor supply continued as the percent with positions not able to be filled right now rose slightly to 25% but the percentage with few or no qualified applicants for job positions increased to 48%, the most since September 2007. The percentage indicating now was a good time to expand the business rebounded modestly to 12%, near the middle of the range during the last year.

The percentage indicating that credit was harder to get remained at 4%, but was down from the 2009 high of 16%. The percentage planning capital expenditures in the next 3 to 6 months notched up to 24% but still was down from 29% in December.

On the pricing front, 5% of firms were raising average selling prices last month, down from 14% twelve months ago. The percentage planning price increases eased m/m to 17%. Labor's pricing power stabilized m/m as the percentage of firms raising worker compensation rose to 23% and recovered a bit of June's decline. The percentage planning to raise compensation rebounded to 15%, the most this year.

The most important problems faced by small business were taxes (22%), government requirements (21%), quality of labor (13%), poor sales (10%), insurance cost & availability (8%), competition from large businesses (8%), cost of labor (6%), inflation (3%) and financial & interest rates (2%).

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.