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Economy in Brief

U.S. Small Business Optimism Roughly Steady at 1975 Low
by Tom Moeller December 9, 2008

According to the National Federation of Independent Business (NFIB), small business optimism held roughly steady last month. At 87.8, the index rose 0.3% m/m from October after that month's 5.8% decline to the lowest level since early-1975.

During the last ten years there has been a 50% correlation between the level of the NFIB index and the two-quarter change in real GDP.

The percentage expecting the economy to improve rose very slightly after a large October decline. The percentage reporting that now is a good time to expand the business also rose slightly but remained near the lowest since 1982. During the next 3-6 months, plans for capital spending ticked up from October but was near the lowest level since 1975.

The percentage planning to raise employment fell into negative territory while the percentage of respondents with one or more job openings remained at 14%, the least since 1992. 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 credit conditions to ease ticked up slightly but remained near its lowest level since 1980. The percent expecting higher real sales in six months also remained near its lowest since 1980.

The largest, single most important problems seen by business were poor sales (25%), taxes (21%), inflation (9%), insurance cost and availability (9%).

The percentage of firms actually raising prices fell to zero, the lowest since early 2002. During the last ten years there has been a 69% 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 further to 11% which was the least since 2001.

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.

Restoring Financial Intermediation by Banks: The Role of Regulators is yesterday's speech by Fed Vice Chairman Donald L. Kohn and it it is available here.

Nat'l Federation of Independent Business November October Y/Y 2007 2006 2005
Small Business Optimism Index (1986=100) 87.8 87.5 -7.0% 96.7 98.9 101.6
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