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Economy in Brief

U.S. Small Business Optimism Recovers
by Tom Moeller May 12, 2009

According to the National Federation of Independent Business (NFIB), small business optimism recovered sharply last month. The index level of 86.8 was its highest level since last November. However, despite the increase business were far from ebbulient and the index was down 5.1% year-to-year.

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 latest rise in the index occurred as the percentage expecting the economy to improve jumped to 2% after spending several months in negative territory. Also jumping sharply was the percentage expecting credit conditions to ease while the percentage reporting that now is a good time to expand the business rose to its highest since January. During the next 3-6 months, plans for capital spending actually improved to the highest level since January.

The percentage planning to raise employment made up a sharp March decline but remained a net negative 5%. However, the percentage of respondents with one or more job openings fell to a new low for the series of 9%, the least since 1982. 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 largest, single most important problems seen by business were poor sales (32%), taxes (22%), government requirements (11%), insurance cost and availability (8%), competition from large businesses (6%) and inflation (4%).

The percentage of firms planning to raise prices ticked up to 1%, near the 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.

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 April Marh Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 86.8 81.0 -5.1% 89.8 96.7 98.9
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