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Economy in Brief

Small Business Optimism Recovered, Pricing Pressures Eased
by Tom Moeller October 10, 2006

In September, small business optimism more than recovered the prior month's decline. A 3.6% increase lifted the index to the highest level since April, according to the National Federation of Independent Business (NFIB).

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 to the best level since February and the percentage planning to increase employment held at the highest level since February.

The percent of firms currently with one or more job openings held at 25%, about where it's been since May. 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 back to 30% recovering most of the prior month's decline..The percentage of firms planning to raise average selling prices fell sharply to 22%, the lowest level since early 2004. The percentage of firms actually raising prices also fell to 20%, its lowest level since March. 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.

Prospects for the U.S. Economy, yesterday's speech by Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco can be found here.

Nat'l Federation of Independent Business September August Y/Y 2005 2004 2003
Small Business Optimism Index (1986=100) 99.4 95.9 -0.6% 101.6 104.6 101.3
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