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Economy in Brief

U.S. Small Business Optimism Near 1975 Low
by Tom Moeller June 10, 2008

Small business optimism, according to the National Federation of Independent Business (NFIB), fell 2.4% in June and reversed its May rise. The decline to 89.3 dropped optimism to the lowest level since January 1975, its second lowest level on record.

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.

Twelve percent fewer respondents expected the economy to improve and only two percent were planning to raise employment, the least since early-2003. Only fifteen percent had one or more job openings. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.

Eight percent of firms indicated that credit was harder to get, near the highest level since 1993 and that was more than double the percentage during 2004.

A much reduced four percent of respondents thought that now was a good time to expand the business, the least since 1982, but 28% of respondents expected lower earnings, near the recent low.

The percentage of firms actually raising prices again rose m/m, to 23% which was the highest level since July of 2006. During the last ten years there has been a 64% correlation between the y/y 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 32%, its highest since late-2005.

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.

Reducing Systemic Risk in a Dynamic Financial System is yesterday's speech by New York Fed President Timothy F. Geithner and it can be found here

Nat'l Federation of Independent Business May April Y/Y 2007 2006 2005
Small Business Optimism Index (1986=100) 89.3 91.5 -8.1% 96.7 98.9 101.6
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