U.S. small business optimism edges higher in October

WASHINGTON (Reuters) - U.S. small businesses grew slightly more optimistic last month but owners remained cautious as weak sales gave them little reason to order new stocks, a survey released on Tuesday showed.

The National Federation of Independent Business said its monthly small business optimism index grew for the third straight month, rising 0.3 points to 89.1 in October.

“The recession is now 22 months old, straining the financial resources of more and more small firms,” said William Dunkelberg, NFIB chief economist. “The economy may have turned, but it’s a slow turn so far.”

Weak sales -- most frequently reported as the top business problem -- have also made it harder for a net 14 percent of small business owners to get a loan, NFIB said.

“With very weak plans to make capital expenditures, add to inventory and expand operations, it would appear that many of those trying to borrow are having cash flow difficulties due to very weak sales,” the trade group said.

The poor earnings and sales performance has weakened the credit-worthiness of many potential borrowers, resulting in tougher terms and higher loan rejection rates, even with no change in lending standards, NFIB said.

“Consumer spending is weak, recent reports on consumer sentiment are discouraging, and there is nothing on the table in Washington to make owners more optimistic about the future, a recipe for depressed expectations and spending plans,” the trade group said.

More firms were planning on cutting jobs than were planning to add. But jobs were added in professional services, finance, insurance and real estate, and manufacturing, the group said.

“Overall the small business job machine is in reverse due to continued declines in reported sales, rising labor costs and a need to cut costs,” said Dunkelberg.

Reporting by Nancy Waitz, Editing by Chizu Nomiyama