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Economy in Brief

Small Business Optimism Fell Again
by Tom Moeller January 9, 2007

Small business optimism fell for the second consecutive month in December. The 3.2% decline followed a 1.0% November slip and left optimism 10.4% below its peak in late 2004, 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 dropped sharply while the percentage of firms with job openings and those expecting higher real sales in six months fell moderately.

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 also dropped sharply to a three year low.

The percentage of firms planning to raise average selling prices rose moderately but the percentage of firms actually raising prices fell to the lowest level since early 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.

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

The Economic Outlook, yesterday's speech by Federal Reserve Board Vice Chairman Donald L. Kohn, can be found here.

Nat'l Federation of Independent Business December November Y/Y 2006 2005 2004
Small Business Optimism Index (1986=100) 96.5 99.7 -4.9% 98.9 101.6 104.6
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