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Economy in Brief

U.S. Small Business Optimism Fell Even Further; Pricing At All-time Low
by Tom Moeller February 10, 2009

According to the National Federation of Independent Business (NFIB), small business optimism fell again last month. The index level of 84.1 was down 1.3% month-to-month. The latest level was the lowest since early-1980 and 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 further to 2%, a new record low. Price discounts were evident as the percentage of firms actually raising prices fell further into negative territory, and the reading was a record low. 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 remained in negative territory. The percentage reporting that now is a good time to expand the business fell back to near the lowest since 2003. During the next 3-6 months, plans for capital spending increased slightly but was still near the lowest level since 1975.

The percentage planning to raise employment remained at last month's low of a net negative 6% while the percentage of respondents with one or more job openings dropped further to 11%, 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 was about unchanged, near its lowest level since 1980. The percent expecting higher real sales in six months fell to a net negative 20%, near the lowest since 1980.

The largest, single most important problems seen by business were poor sales (28%), taxes (19%), government requirements (11%), insurance cost and availability (9%), competition from large businesses (6%) and inflation (6%).

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 January December Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 84.1 85.2 -8.4% 89.8 96.7 98.9
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