Small business sentiment falls in December, profits tumble

WASHINGTON (Reuters) - Small business sentiment deteriorated in December, posting its second lowest reading in 35 years, highlighting the worst post-war economic climate that has seen a dramatic cut back in consumer spending.

The National Federation of Independent Business (NFIB) said on Tuesday its small business optimism index fell 2.6 points to 85.2 in December, the second lowest reading in the survey's 35-year history.

The last time the index was near these levels was in 1980, when it fell to 80.1 in February. The survey was conducted through December 29 and covered 805 businesses.

"Owners, particularly retailers who make their year in the fourth quarter, were hoping that consumers would once again ride to the rescue. It didn't happen," said William Dunkelberg, chief economist at the NFIB.

"Profit trends are terrible, and since 80 percent of small business costs are typically compensation costs, owners had no choice but to trim jobs."

The collapse of the U.S. housing market and the resulting global crisis has left the world's largest economy mired in a recession since December 2007.

Analysts reckon the current economic downturn has potential to be the longest since the contraction seen in 1981 that lasted 16 months.

Confronted with massive jobs losses and an uncertain economic outlook, households have sharply cut back on spending. That pull back, together with tight credit conditions, has hit businesses hard, resulting in more layoffs.

About 2.6 million people lost their jobs in 2008, the largest slump in employment since 1945. The U.S. jobless rate is at 7.2 percent, the highest in almost 16 years.