U.S. Small Business Optimism Lowest Since 1975

According to the National Federation of Independent Business (NFIB), small business optimism collapsed last month. The 5.8% m/m decline to an index level of 87.5 reversed all of the gains during the prior two months and dropped the level of optimism to its lowest level since early 1975.

During the last ten years there has been a 50% correlation between the level of the NFIB index and the two-quarter change in real GDP.

Plans for capital expenditures collapsed with the recent weakness if corporate profits. During the next 3-6 months, plans for spending fell to their lowest level since 1975.

The percent expecting credit conditions to ease fell to its lowest level since 1980 while the percent expecting higher real sales in six months dropped also to its lowest since 1980. Only five percent of firms thought that now was a good time to expend the business, near the lowest since 1982.

The percentage planning to raise employment fell to zero. The percentage of respondents with one or more job openings improved to 14%, the least since 1992. 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 largest, single most important problems seen by business were poor sales (23%), inflation (11%), insurance cost and availability (11%) and taxes (18%). The latter, however, still was reduced from 27% in early 2007.

The percentage of firms actually raising prices fell to 15%, the lowest level since February. 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. The percentage of firms planning to raise prices also fell further to 18% which was the least since 2003

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.

Toward A Durable Recovery is last week's speech by Atlanta Fed Bank President Dennis P. Lockhart and it available here.

The retail price for a gallon of regular gasoline fell by another eighteen cents last week after the twenty six cent drop during the prior week, according to the U.S. Department of Energy survey. The price of $2.22 was the lowest since February 2007. Prices have now fallen $1.89 per gallon, or by nearly one-half, since their peak early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $2.28 per gallon.

Yesterday, the spot market price for a gallon of regular gasoline fell eight cents from last week's average to $1.40. In futures trading the November contract closed down further at $1.37 per gallon.

Weekly gasoline prices can be found in Haver's WEEKLY database. Daily prices are in the DAILY database.

The demand for gasoline fell by 3.3% y/y, according to the U.S. Department of Energy. The rate of decline has bottomed out recently but the decline is still the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also has softened, falling 7.0% y/y.

These DOE figures are available in Haver's OILWKLY database.

The price for a barrel of West Texas Intermediate crude oil fell further last week to an average $64.31 per barrel, down 56% since the peak in July of $145.66. In futures trading yesterday, the two-month price for crude oil was even lower at $63.27 per barrel.

Last week, prices for natural gas ticked up w/w to $6.74 per mmbtu (-3.3% y/y) as seasonal factors began to lift the price. The average price this month was nearly one-half below the high for natural gas prices in early-July of $13.19/mmbtu.

If Exchange Rates Are Random Walks, Then Almost Everything We Say About Monetary Policy Is Wrong from the Federal Reserve Bank of Minneapolis can be found here.

According to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week from the last week in October. That wasn't the first sign of severe weakness in sales. There was one weekly decline last month and sales were down during each week of September, but the decline did lower the starting level of sales this month 0.7% below the October average. During all of October sales fell 1.0% from September following that month's 1.9% drop.

The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

Investors in Germany appear to be encouraged by the steps the central bank and the government have taken in recent weeks to deal with the economic slowdown. The European Central Bank reduced it key rate by 50 basis points on October 8 and is expected to reduce it by another 50 basis points on November 12 binging it to 3.25%. In addition, the German government passed a $64 billion stimulus package on November 4.In the latest ZEW survey, the excess of pessimists over optimists regarding future conditions declined to 53.5% in November from 63.0% in October. This still a far cry from the historical average of an excess of optimists of 27.1%.In appraising the current situation, German investors have become more and more pessimistic--or perhaps more realistic. From an excess of optimists over pessimists of 17% in July, there is now an excess of pessimists over optimists of 50.4% viewing the current situation. The ZEW indicators for current and expected conditions, together with recession shadings for Germany, are shown in the first chart.

In Japan, the merchants who make up the Economy Watchers Diffusion Index have reported worsening conditions for both for the present and for the future outlooks in almost every month since mid 2007, when the sub prime problem in the U. S. first surfaced. Currently, these indexes are at all time lows as can be seen in the second chart, which plots the history of the diffusion indexes and the recession shading for Japan. The Bank of Japan recently cut its key interest rate to 0.3% from 0.5%, but little has been done in the way of fiscal stimulus.