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Economy in Brief

U.S. Small Business Optimism Stable, Near 1975 Low
by Tom Moeller July 8, 2008

Small business optimism, according to the National Federation of Independent Business (NFIB), was about unchanged in June but, at 88.2, the index remained near 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.

Improvement in the percentage of respondents with one or more job openings was offset by deterioration in the percent expecting the economy to improve. Twenty-one 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. The percentage planning to raise employment reversed its May deterioration but remained near the least since early-2003.

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

Four percent of respondents thought that now was a good time to expand the business, the least since 1982, but 33% of respondents expected lower earnings, a record low.

The percentage of firms actually raising prices surged to 29%, the highest level since 1981. 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 surged to 36%, also its highest since 1981.

Twenty percent of respondents indicated that inflation was the single most important problem, the highest since 1981 and four times the percentage of the prior four years.

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 June May Y/Y 2007 2006 2005
Small Business Optimism Index (1986=100) 89.2 89.3 -7.1% 96.7 98.9 101.6
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