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Economy in Brief

U.S. Small Business Optimism Stutters
by Tom Moeller December 8, 2009

After improving this spring, small business' optimism has leveled off. The National Federation of Independent Business (NFIB) reported their small business optimism index during November dipped 0.9% to 88.3 after two months of slight increase. 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 fell sharply to 3 from the May high of 12. The percentage which thought that now was a good time to expand the business also leveled off at 8 though it has sharply improved from this winter.

Hiring intentions have responded negatively to the stall in overall sentiment. The percentage of firms planning to raise employment remained in a net-layoff region, although planned layoffs have eased sharply from a March low. The percentage of firms with one or more job openings held at just 8% during December, 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 stable in the negative region was the percentage expecting credit conditions to ease.

On the pricing front, conditions eased. The percentage of firms actually raising prices held at a depressed -17% (indicating deflation) and remained  near the record low. During the last ten years there has been a 60% 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 slipped slightly to a net 4 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 (33%), taxes (20%, near its highest level since 2007), government requirements (13%), insurance cost & availability (8%), competition from large businesses (6%) and inflation (3%).

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 November October September Y/Y 2008 2007 2006
Small Business Optimism Index (SA, 1986=100) 88.3 89.1 88.8 0.6% 89.8 96.7 98.9
  Percent of Firms Expecting Economy To Improve 3 11 8 -2 -10 -4 -1
  Percent of Firms With One or More Job Openings 8 8 8 14 18 24 25
  Percent of Firms Raising Avg. Selling Pric1es (Net) -17 -17 -21 0 17 15 20
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