Small business optimism sags in July

Current and prospective small business owners talk to vendors with information about state, federal, and private funding resources at a Small Business Financing Fair in Manchester, New Hampshire in this June 29, 2009 file photo.

WASHINGTON (Reuters) - Small business owners became more downbeat in July as expectations of weaker economic growth in the second half of the year reinforced a reluctance to hire, according to a survey published on Tuesday.

The National Federation of Independent Business (NFIB) said its optimism index fell 0.9 point to 88.1 in July.

"Virtually all of the decline was due to weaker expectations for business conditions six months from now," said William Dunkleberg, the group's chief economist.

Only 2 percent of respondents said they had plans to create new jobs. That actually represented an improvement from June's 1 percent reading.

Data released last week showed the U.S. labor market is still in a rut, with a net loss of 131,000 jobs for July.

The NFIB report found that inflation pressures remain tame. Just 12 percent of small business owners reported raising average selling prices, while 24 percent said they were cutting prices.

"With no pricing power and real sales volume weak, profits are not able to recover," the report said. "Inflation is clearly not a problem."

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)