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Economy in Brief

U.S. Small Business Optimism Improves Sharply
by Tom Moeller May 11,2010

Small business activity may finally be joining with the broader economic improvement. The National Federation of Independent Business (NFIB) reported their April small business optimism index jumped m/m to 90.6 which is the highest level since September 2008. 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 number of companies reporting that inventories were too low jumped to the highest level since 2005. Improvement in company earnings this quarter was not far behind, with a rise to the highest level since 2008. Most other components including expectations for the economy and credit conditions showed moderate improvement.

Hiring plans remained restrained. The percentage of firms with one or more job openings recovered its March decline but remained low. The percentage of firms planning to increase hiring continued the sideways movement of the last year. During the last ten years there has been a 74% correlation between the NFIB employment index and the six-month change in nonfarm payrolls.

Pricing activity improved. The percentage of firms actually raising prices rose to a still-low -11% (indicating deflation). During the last ten years there has been a 51% correlation between the six-month change in the producer price index and the level of the NFIB price index.Also, the percentage of firms planning to raise prices rose back to its highest level since late-2008. Finally, the percentage planning to raise worker compensation rose slightly to 5%.

The most important problems seen by business were poor sales (34%), taxes (a reduced 19%), government requirements (11%), insurance cost & availability (9%), competition from large businesses (a reduced 5%) and inflation (an increased 5%).

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 April March February April '09 2009 2008 2007
Small Business Optimism Index (SA, 1986=100) 90.6 86.8 88.0 86.8 86.7 89.8 96.7
Percent of Firms Expecting Economy To Improve 0 -8 -9 2 -0 -10 -4
Percent of Firms With One or More Job Openings 11 9 11 9 9 18 24
Percent of Firms Reporting That Credit Was Harder To Get 14 15 12 14 14 9 6
Percent of Firms Raising Avg. Selling Prices (Net) -11 -20 -21 -24 -20 17 15
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