Small business optimism tanks in October: survey

WASHINGTON (Reuters) - Small business owners are losing confidence in the U.S. economy and have little hope that recent Federal Reserve interest rate cuts will do much to boost sales, a survey released on Tuesday showed.

The index of small business optimism for October fell 5.4 points to 87.5, the third lowest reading in the survey's history, the National Federation of Independent Business said.

"The decline in the index is a clear indication that the economy is solidly lodged in a recessionary mire," said NFIB Chief Economist William Dunkelberg.

Reports of declining sales are the largest in survey history and planned capital expenditures posted the second lowest reading in 35 years, the trade group said.

The third-quarter decline in gross domestic product was not large at an annualized 0.3 percent, but consumer spending -- 70 percent of GDP -- was down more than 3 percent, NFIB said.

"The consumer does not appear ready to get into a holiday mood to save the fourth-quarter numbers," Dunkelberg said.

Over the next three months, zero percent of the owners plan to create jobs, seven points lower than in September and one of the lowest readings in survey history.

"While Fed policy may be keeping financing costs low, the weak economy has reduced the need for expansion and new equipment putting pressure on cash flows and inducing owners to postpone discretionary capital outlays," said Dunkelberg.

Plans to make capital expenditures over the next six months fell 2 points to 19 percent. The reading was last this low in 1975 and only ever lower at 16 percent in 1974.

Poor sales expectations produced a decline in plans to add to inventories, the trade group said.

NFIB said that the credit worthiness of potential borrowers has deteriorated over the last year, leading to more difficult terms and higher loan rejection rates for some owners.

"More owners expect credit to tighten on Main Street than get easier in spite of the Fed's expansionary policies, and their concern is deepening," said Dunkelberg.

(Reporting by Nancy Waitz; editing by Gary Crosse)