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Economy in Brief

U.S. Small Business Optimism Lowest Since 1980
by Tom Moeller April 8, 2008

According to the National Federation of Independent Business (NFIB), small business optimism during March fell to the lowest level since 1980. The 3.6% m/m decline to a reading of 89.6 followed a modest 1.2% February rise. The drop lowered the level of sentiment 7.3% below the 2007 average and it was the lowest level since the short, "credit crunch" recession of 1980.

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.

Seven percent of firms indicated that credit was harder to get. That was near the highs of the last several months and it was more than double the percentage during 2004.

Twenty three percent fewer respondents in March expected the economy to improve and only three percent of the respondents expected to raise employment. That was the least since 2003. During the last ten years there has been a 72% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.

Only five percent of respondents thought that now was a good time to expand the business, the least since 1982, and expectations for earnings fell to the lowest level since 1982.

The percentage of firms actually raising prices rose m/m to 18% which was the highest level since July of 2007. 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 also rose to 29%, its highest since August 2006.

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

The NFIB figures can be found in Haver's SURVEYS database.

Nat'l Federation of Independent Business March February Y/Y 2007 2006 2005
Small Business Optimism Index (1986=100) 89.6 92.9 -7.9% 96.7 98.9 101.6
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