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Economy in Brief

U.S. Small Business Optimism Fell Further to Near All-time Low; Pricing At All-time Low
by Tom Moeller January 13, 2009

According to the National Federation of Independent Business (NFIB), small business optimism fell hard last month. The index level of 85.2 was down 3.0% month-to-month and it followed the slight 0.3% November uptick. The latest was the lowest since early 1980 and it was the second lowest level on record.

During the last ten years there has been a 49% correlation between the level of the NFIB index and the two-quarter change in real GDP.

The percentage of firms planning to raise prices fell to 3%, the lowest on record. The percentage of firms actually raising prices fell into negative territory and the reading was 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 expecting the economy to improve fell to near the lows of earlier this year. The percentage reporting that now is a good time to expand the business was stable at 7%, near the lowest since 2003. During the next 3-6 months, plans for capital spending dropped sharply to near the lowest level since 1975.

The percentage planning to raise employment fell further 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 fell slightly and remained near its lowest level since 1980. The percent expecting higher real sales in six months fell to near the lowest since 1980.

The largest, single most important problems seen by business were poor sales (27%), taxes (20%), inflation (7%), insurance cost and availability (10%) and government requirements (8%).

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 December November Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 85.2 87.8 -9.9% 89.8 96.7 98.9
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