The economy and uncertain political climate are taking a toll on small business owners' optimism, making them hesitant to expand.
The National Federation of Independent Business said its index of small business owners' sentiment fell 3 points in June to 91.4 after edging lower in May.
The index, compiled from a survey of NFIB members, shows that business owners are concerned about the economy. The number of owners expecting business conditions to improve in six months fell 8 percentage points and the number expecting their sales to rise slid 5 percentage points. Nearly a quarter of those surveyed say their biggest problem is weak sales.
Owners said they are scaling back plans to hire and to buy equipment. That's a troubling sign for the U.S. labor market, which is struggling to gain traction.
"This month's survey was a real economic downer," said NFIB Chief Economist William Dunkelberg. "The economy has definitely slowed; job growth will be far short of that needed to reduce the unemployment rate."
Small businesses also are hesitant to expand because of high political uncertainty, the NFIB said. With the results of the presidential and congressional elections four months away, owners don't know what to expect in terms of taxes and government regulations.
The results were in line with some other indicators of small business sentiment. A National Association of Manufacturers survey said small manufacturing firms expect their sales to rise at a slower pace in the next year than larger manufacturers.
The NFIB survey was conducted through June 29, the day after the Supreme Court upheld the Obama administration's health care overhaul. The impact of the decision on owners' sentiment will likely be reflected in the NFIB's July index, Dunkelberg said.
The June survey also showed that owners expect earnings to decline. The number of jobs they currently have open fell. So did their plans to increase inventories. The only component of the index that showed a gain was expectations for credit conditions. Owners believe that credit will be easier to obtain in the coming months.
The index was compiled from the responses of 740 randomly selected NFIB members.