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Economy in Brief

Small Business Optimism Recovered
by Tom Moeller August 8, 2006

Small business optimism last month recovered most of the June decline with a 1.4% rise, according to the National Federation of Independent Business (NFIB). Nevertheless, the average level of the NFIB index this year remained 2.5% below the 2005 average.

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.

Respondents expecting the economy to improve rose modestly m/m but remained near the lowest level since early 2001.

The percentage of firms planning to increase employment improved markedly m/m but the number of firms currently with one or more job openings slipped. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.

The percent planning to raise capital expenditures rose to 31%, about the same as last year..The percentage of firms planning to raise average selling prices rose back to 30% and the percentage of firms actually raising prices was stable m/m at 23%. 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.

Nat'l Federation of Independent Business July June Y/Y 2005 2004 2003
Small Business Optimism Index (1986=100) 98.1 96.7 -3.0% 101.6 104.6 101.3
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