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Economy in Brief

U.S. Small Business Optimism Slips From Eight Month High
by Tom Moeller July 14, 2009

According to the National Federation of Independent Business (NFIB), small business optimism slipped last month from May but the index level of 87.8 still was its highest level since last November. Optimism remained down 1.6% from last 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 percentage planning to raise employment remained slightly negative but was at its highest level since October. The percentage of respondents with one or more job openings improved modestly to 11% but that was still near 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 latest rise in the overall index occurred as the percentage expecting the economy to improve slipped to 7% but that was the third consecutive month in positive territory. The percentage expecting credit conditions to ease remained in its recent range while the percentage reporting that now is a good time to expand the business slipped but also remained positive. During the next 3-6 months, plans for capital spending also remained range-bound and modestly positive.

The largest, single most important problems seen by business were poor sales (32%), taxes (19%), government requirements (15%), insurance cost and availability (7%), competition from large businesses (6%) and inflation (5%).

The percentage of firms planning to raise prices rose slightly to 5% but that still was near the record low. Though the figure improved modestly, the percentage of firms actually raising prices remained in negative territory near the 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 June May Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 87.8 88.9 -1.6% 89.8 96.7 98.9
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