The Optimism Index gained 1.7 points, rising to 92.9. Although an improvement, the number is still another solid recession reading. There were some positive signs however, the employment indicators for the fourth quarter improved substantially as did plans for capital outlays. However, few think the current period is a good time to expand at 4 percent. The percent of owners viewing the current period as a BAD time to expand due to political uncertainty reached a new record high for this business cycle at 22 percent.

As expected, there was no real change in owner optimism in August since nothing happened to make owners more confident about the future.Consumers were equally unimpressed according to the University of Michigan/Reuters survey. The survey shows only 12 percent of consumers think the government is doing a good job and 46 percent feel government is doing a bad job. And while the top ranked problem (out of 75) in the recently released NFIB Problems and Priorities survey was health insurance costs, the second and fourth ranked problems were “uncertainty about the economy” and “uncertainty about government policy.” This goes a long way toward explaining why spending seems to be in “maintenance mode.” With 50/50 odds in the polls, the president will be determined by the flip of a coin. The policy outcomes depending on who wins appear to be hugely different, and consequently, owners are not betting their hard earned money on the flip of a coin. They are waiting for more certainty about the direction of the economy and policy.

Since 1986 when NFIB started the monthly surveys, the Index has been below 93 for a total of 50 months. Forty-three (43) of them have occurred in the current “recovery” which began in June 2009. That says it all about this recovery. Index readings of a typical recovery are generally above 100, the average historical reading.

Always looking for something positive in these dreary numbers, the labor market readings were very solid, with the best hiring plans number in 53 months and a 3 point gain in the job openings indicator. Good for the future, but really no good news about recent months, job creation for existing firms was still basically nil. Job creation in the private sector will depend on large firm hiring, if any, and jobs at new firms that are being created by population growth. Capital spending stirred a point and plans rose 3 points, but still recession type readings. And expectations for real sales gains and for business conditions six months out did improve, but also remain at recession levels.

Some Fed officials still talk about the unwillingness of banks to lend, and for some troubled banks, that might be the case. But these are few in number compared to the number of independent banks available and bankers continue to complain about a dearth of qualified applicants, a position supported by the NFIB surveys. QE3 seems to be creeping toward existence, but opposition is stiff and logical – who hasn’t already responded to record low mortgage rates? What firms didn’t pull the trigger on a project but for a quarter point rate differential? Indeed, if banks are reluctant, it may be due to the Fed’s engineered low rates, too low for ordinary banks to risk locking in for long periods of time. Yes, there might be a third stock market pickup from QE3, but this really isn’t going to get consumers to spend more, it would just be a gift to TBTF banks and traders. And it’s likely to be a very small response. The Fed may be way off its unemployment target (not specified), but QE3 will not have an impact on employment. It will make the Fed’s “unwinding” job more difficult and exposes the Fed to the risk of discovering that “the Emperor wears no clothes.”