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Economy in Brief

U.S. Small Business Optimism Recovered
by Tom Moeller September 9, 2008

Small business optimism, according to the National Federation of Independent Business (NFIB), recovered last month to the highest level since April. The 3.3% m/m rise to 91.1 made up all of a 1.1% July decline which had pulled the index to its lowest level since early 1975.

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.

The percentage planning to raise employment recovered modestly to 9% which was the highest level since February. Nevertheless, the percentage of respondents with one or more job openings fell back to the recent five-year low. 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 percent expecting the economy to improve rose to the highest level since late 2006. As a result, only six percent of respondents thought that now was a good time to expand the business, the least since 1982.

The percentage of firms actually raising prices fell back to 26% from 32% in July which was 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 fell back to 30% which was the least since March.

The largest, single most important problems seen by business were poor sales (18%), inflation (18%), insurance cost and availability (13%) and taxes (17%). The latter, however, was much reduced from 27% in early 2007.

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.

The statement by Federal Reserve Board Chairman Ben S. Bernanke on Fannie Mae and Freddie Mac can be found here.

Nat'l Federation of Independent Business August July Y/Y 2007 2006 2005
Small Business Optimism Index (1986=100) 91.1 88.2 -5.4% 96.7 98.9 101.6
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