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Economy in Brief

Small Business Optimism Up, Pricing Intentions Cool
by Tom Moeller November 8, 2005

The index of small business optimism from the National Federation of Independent Business (NFIB) jumped 3.7% in October, despite the devastation wreaked by three Hurricanes.

The economic outlook brightened as 14% of firms expected the economy to improve, the best reading since June, although the percentage remained well below the 34-37% range from 2002 to 2004. Plans for adding to employment held steady at 17%, the same as during the last three months. On the negative side, the percentage of firms planning to raise capital expenditures fell back to the lowest level of the year.

During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.

The percentage of firms planning to raise average selling prices fell to 23% from 27% during the prior two months and from 26% during all of last year. The percentage of firm actually raising prices also dipped to 22% from 25% in September but those readings remained up versus 19% averaged in 2004. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.

The percentage of firms with one or more job openings fell two points to 21%, last year's average. During the last ten years there has been a 67% correlation between hiring plans and the three month growth in nonfarm payrolls.

About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

The latest press release from the NFIB is available here.

Nat'l Federation of Independent Business Oct Sept Y/Y 2004 2003 2002
Small Business Optimism Index (1986=100) 103.7 100.0 -0.2% 104.6 101.3 101.2
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