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Economy in Brief

Small Business Optimism Up Slightly
by Tom Moeller January 10, 2006

The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month's 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from 3Q but sharp declines early in the year pulled the 2005 levels down 2.8% from averaged during 2004, the first annual drop since 2001.

The marginal m/m improvement reflected fewer firms (22%) firms with one or more job openings and fewer firms (21%) expecting higher real sales in six months offset by slightly more expecting the economy to improve and slightly more expecting higher earnings.

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 backup off sharply from the November high to 27%. The percentage of firms actually raising average selling prices also fell sharply to 18%. 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.

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.

The National Economy and Monetary Policy in the New Year from Kansas City Federal Reserve Bank President Thomas H. Hoenig can be found here.

Nat'l Federation of Independent Business Dec Nov Y/Y 2005 2004 2003
Small Business Optimism Index (1986=100) 101.4 101.2 -4.4% 101.6 104.6 101.3
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