· Earlier improvement in small business' optimism slipped again last month. The National Federation of Independent Business (NFIB) reported their December small business optimism index dipped 0.3% to 88.0. This second consecutive slight decline followed several months of increase after reaching a March low of 81.0. During the last ten years, there has been an 85% correlation between the level of the NFIB index and the two-quarter change in real GDP.

· Credit conditions remained as tight as they've been since the "credit crunch" recession of 1980. The percentage of firms reporting that credit was harder to get was stable m/m at a net 15 but that was roughly triple the percentage from 1994 to 2007. The percent borrowing at least once last quarter was stable at 33% but that was down from the high of 46% during 2006.

· The percentage of small businesses expecting the economy to improve dipped slightly m/m to 2 after a sharp November decline. The latest was down from the May high of 12. The percentage which thought that now was a good time to expand the business also slipped to 7 though it remained sharply improved from this winter.

· Hiring intentions have responded negatively to recent weakness in overall business sentiment. The percentage of firms planning to raise employment remained in a net-layoff region, though it has improved from the March low. For now, the percentage of firms with one or more job openings improved modestly to 10% during December. During the last ten years there has been a 74% correlation between the NFIB employment percentage and the six-month change in nonfarm payrolls. Also stable in the negative region was the percentage expecting credit conditions to ease.

· On the pricing front deflation continued. The percentage of firms actually raising prices at -22% (indicating deflation) slipped from the prior several months and was near the record low. During the last ten years there has been a 60% correlation between the six-month change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices slipped again to a net 3 though that remained up from the March low of zero. Finally, the percentage planning to raise worker compensation fell to 1.

· The largest, single most important problems seen by business were poor sales (34%), taxes (20%, near its highest level since 2007), government requirements (13%), insurance cost & availability (7%), competition from large businesses (6%) and inflation (2%).

· About 24 million small businesses exist in the United States. Small business creates 80% of all new jobs in America and the NFIB figures can be found in Haver's SURVEYS database. 

Nat'l Federation of Independent Business

December

November

October

Y/Y

2009

2008

2007

Small Business Optimism Index (SA, 1986=100)

88.3

89.1

3.3%

89.8

96.7

Percent of Firms Expecting Economy To Improve

3

11

-13

-10

-4

Percent of Firms With One or More Job Openings

8

8

14

18

24

Percent of Firms Raising Avg. Selling Pric1es (Net)

-17

-17

-6

17

15