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Economy in Brief

U.S. Small Business Optimism Slips Again As Credit Remains Tight
by Tom Moeller January 13, 2010

Earlier improvement in small business' optimism slipped again last month. The National Federation of Independent Business (NFIB) reported their December small business optimism index dipped 0.3% to 88.0. This second consecutive slight decline followed several months of increase after reaching a March low of 81.0. 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.

Credit conditions remained as tight as they've been since the "credit crunch" recession of 1980. The percentage of firms reporting that credit was harder to get was stable m/m at a net 15 but that was roughly triple the percentage from 1994 to 2007. The percent borrowing at least once last quarter was stable at 33% but that was down from the high of 46% during 2006.

The percentage of small businesses expecting the economy to improve dipped slightly m/m to 2 after a sharp November decline. The latest was down from the May high of 12. The percentage which thought that now was a good time to expand the business also slipped to 7 though it remained sharply improved from this winter.

Hiring intentions have responded negatively to recent weakness in overall business sentiment. The percentage of firms planning to raise employment remained in a net-layoff region, though it has improved from the March low. For now, the percentage of firms with one or more job openings improved modestly to 10% during December. 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 deflation continued. The percentage of firms actually raising prices at -22% (indicating deflation) slipped from the prior several months and was 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 again to a net 3 though that remained up from the March low of zero. Finally, the percentage planning to raise worker compensation fell to 1.

The largest, single most important problems seen by business were poor sales (34%), taxes (20%, near its highest level since 2007), government requirements (13%), insurance cost & availability (7%), competition from large businesses (6%) and inflation (2%).

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 December November October Y/Y 2009 2008 2007
Small Business Optimism Index (SA, 1986=100) 88.0 88.3 89.1 3.3% 86.7 89.8 96.7
Percent of Firms Expecting Economy To Improve 2 3 11 -13 -0 -10 -4
Percent of Firms With One or More Job Openings 10 8 8 14 9 18 24
Percent of Firms Reporting That Credit Was Harder To Get 15 15 14 12 14 9 6
Percent of Firms Raising Avg. Selling Pric1es (Net) -22 -17 -17 -6 -20 17 15
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