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Economy in Brief

Small Business Optimism At A Three Year Low
by Tom Moeller September 12, 2006

Small business optimism in August reversed all of the prior month's uptick and fell 2.2%, according to the National Federation of Independent Business (NFIB). At 95.9 the index was at its lowest level since March of 2003.

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 fell moderately but the percentage expecting higher real sales in six months plunged.

The percentage of firms planning to increase employment improved to the highest level since January and the number of firms currently with one or more job openings rose slightly. 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 fell to 28%, below the 32% of last year..The percentage of firms planning to raise average selling prices slipped back to 29% and the percentage of firms actually raising prices also slipped to 22%. 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.

Evolution of Retail Payments and the Role of the Federal Reserve, yesterday's speech by Federal Reserve Board Vice Chairman Donald L. Kohn, is available here.

Nat'l Federation of Independent Business August July Y/Y 2005 2004 2003
Small Business Optimism Index (1986=100) 95.9 98.1 -5.0% 101.6 104.6 101.3
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