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Economy in Brief

U.S. Small Business Optimism Improves Slightly Again
by Tom Moeller October 13, 2009

During September, small business' optimism inched higher for the second month as the severe economic weakness of early this year passed. The National Federation of Independent Business (NFIB) indicated their small business optimism index rose to 88.8 during September after an August uptick. The index remained improved from the lows of this past winter but were down from last year.During the last ten years, there has been an 85% correlation between the level of the NFIB index and the two-quarter change in real GDP.

The percentage of small businesses expecting the economy to improve slipped back to just 8. However, despite this negativism the percentage which thought that now was a good time to expand the business rose sharply to 9 which was the highest level in twelve months. Moreover, the percent reporting higher net-earnings this quarter versus last year held at -40 m/m, meaning fewer were reporting negative earnings versus last year. It was the highest level since December.

The recent improvement in business' sentiment has done little, if anything, to improve hiring intentions. The percentage of firms planning to raise employment fell back into the net-layoff region. Moreover, the percentage of firms with one or more job openings held at just 8% during September, the lowest level since 1982. During the last ten years there has been a 74% correlation between the NFIB employment percentage and the six-month change in nonfarm payrolls. Also to the downside, the percentage expecting credit conditions to ease slipped to the lowest level since May.

On the pricing front conditions eased. The percentage of firms actually raising prices slipped to -21 (indicating deflation) and remained near the record low. During the last ten years there has been a 69% correlation between the six-month change in the producer price index and the level of the NFIB price index.The percentage of firms planning to raise prices also slipped a net 6 though that remained up from the March low of zero. Worker compensation improved modestly.

The largest, single most important problems seen by business were poor sales (32%), taxes (24%, its highest level since 2007), government requirements (11%), insurance cost & availability (8%), competition from large businesses (6%) and inflation (4%).

About 24 million small businesses exist in the United States. Small business creates 80% of all new jobs in America and the NFIB figures can be found in Haver's SURVEYS database.

Nat'l Federation of Independent Business September August Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 88.8 86.6 -4.4% 89.8 96.7 98.9
  Percent of Firms With One or More Job Openings 8 8 18 18 24 25
  Percent of Firms Raising Avg. Selling Pric1es (Net) -21 -19 20 17 15 20
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