April 11, 2017
Small business optimism edged lower by 0.6 point in March to 104.7 after having declined 0.6 point in February to 105.3. This is the highest level for this index since 2004.
“Small business owners remain optimistic about the future of the economy and the direction of consumer confidence” said NFIB President Juanita Duggan. “We are encouraged by signs that optimism is translating into economic activity, such as capital investment and job creation.” And NFIB Chief Economist Bill Dunkelberg added, “The increases in capital expenditure plans and actual earnings are signs of a healthier economy, and we expect job creation to pick up in future months.”
In our opinion the economy is bouncing along at a respectable pace and should gather momentum in coming months as the new Trump Administration produces a number of significant policy changes. Specifically, we believe that in the first six months of this year we will see both individual and corporate income tax cuts, legislation that will allow firms to repatriate corporate earnings currently locked overseas back to the U.S. at a favorable 10% rate, elimination of all unnecessary, confusing and overlapping federal regulations, and re-vamping of our health care system to a less expensive and less complicated health care system consisting of tax-advantaged health savings accounts combined with a high deductible health insurance plan to ensure against catastrophic problems. These changes should boost our economic speed limit should from 1.8% or so today to 2.8% within a few years.
Already we see the stock market at a record high level. Jobs are being created at a reasonably robust pace. The unemployment rate is at full employment. The housing sector is booming. And now investment spending should pick up after essentially no growth in the past three years. We expect GDP growth to climb from 2.0% in 2016 to 2.4% in 2017 and 2.7% in 2018. The core inflation will probably quicken from 2.3% in 2016 to 2.7% in 2018 and 2019, but that will not derail the Fed’s plan to raise short-term interest rates very slowly. Accelerating GDP growth, low inflation, and low interest rates should propel the stock market to new record high levels..