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Economy in Brief

Small Business Optimism Remained Low
by Tom Moeller January 8, 2008

In December, small business optimism ticked up a slight 0.2% following sharp declines during most of the year according to the National Federation of Independent Business (NFIB). The latest was near the lowest level since September 1993.

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.

Virtually all of last month's slight increase seemed to come as the percentage of firms planning to raise capital expenditures rose off of this cycle's low.

Also, the percent with one or more job openings rose slightly from the lowest level since 2003. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls. The percentage of firms planning to raise employment remained depressed.

The percentage of firms indicating that credit was more difficult to get remained stable after steady increases through 2007.

Now was a good time the business remained near the low of the last three years.

The percentage of firms expecting higher real sales in six months again fell sharply to the lowest since 2003.

Respondents expecting the economy to improve remained near the low of the last two years..The percentage of firms actually raising prices rose m/m. 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. The percentage of firms planning to raise prices was stable at its highest level in a year.

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

The Economic Outlook and the Fed's Roles in Monetary Policy and Financial Stability is today's speech by Charles I Plosser, President of the Federal Reserve Bank of Philadelphia and it can be found here.

Nat'l Federation of Independent Business December November Y/Y 20007 2006 2005
Small Business Optimism Index (1986=100) 94.6 94.4 -2.0% 96.7 98.9 101.6
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