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Economy in Brief

U.S. Small Business Optimism Retreats; Pricing Power Deteriorates Further
by Tom Moeller  October 14, 2014

The National Federation of Independent Business reported that its Small Business Optimism Index for September fell to 95.3 following an unrevised improvement to 96.1 during August. Despite the decline, the latest level remained near its highest since September 2007, just before the recession began.

Deterioration in the component series versus August included the percentage expecting higher real sales and the percentage planning to increase employment. Collapsing was the percent of businesses with positions they were unable to fill right now. It declined to the lowest level since November. Working the other way, the percentage indicating that now was a good time to expand the business surged to the highest level since December 2007. The percentage that thought the economy would improve gained to its highest point since May and the percent planning to add to inventories returned to its highest level since April.

On the pricing front, the percentage of firms raising prices now fell to its least since February while the percentage planning future price increases fell to the lowest level since July of last year. Labor's pricing power deteriorated somewhat. The percentage of firms raising worker compensation fell to the lowest level since November, however, the percentage planning to raise compensation was stable at the highest level since March 2008.

The most important problems faced by small business were government requirements (22%), taxes (a sharply lower 21%), poor sales (14%), quality of labor (9%), insurance cost & availability (9%), competition from large businesses (8%), cost of labor (4%), inflation (3%) and financial & interest rates (2%).

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

National Federation of Independent Business Sep Aug Jul Sep'13 2013 2012 2011
Small Business Optimism Index (SA, 1986=100) 95.3 96.1 95.7 93.9 92.4 92.2 91.4
Firms Expecting Higher Real Sales In Six Months (SA, Net %) 5 6 10 8 4 2 3
Firms Expecting Economy To Improve (SA, Net %) -2 -3 -6 -10 -15 -9 -9
Firms Planning to Increase Employment (SA, Net %) 9 10 13 9 6 4 3
Firms With Few or No Qualified Applicants For Job Openings (SA, %) 42 46 42 41 39 35 32
Firms Reporting That Credit Was Harder To Get (SA, Net %) 7 5 5 5 6 8 10
Firms Raising Average Selling Prices (SA, Net %) 4 6 14 1 2 4 5
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