Monday, 11 of December of 2017

Economics. Explained.  

Small Business Optimism

November 14, 2017

Small business optimism rose 0.8 point in October to 103.8 after having fallen 2.3 points in Septembe.  This is slightly lower than the cycle high reading of 105.9 set in January which was the highest level for this index since 2004.  A couple of months ago the NFIB noted that the level of the index during the past year represents a hot streak not seen since 1983.

NFIB Chief Economist Bill Dunkelberg added, “Consumer sentiment surged based on optimism about jobs and incomes, an encouraging development as consumers account for 70 percent of GDP.  We expect a pickup in auto spending as people in Texas and Florida continue to replace cars that were damaged in the hurricanes. We expect the same increase in home improvement spending, partly because of the hurricanes, but also because of the skyrocketing price of homes.”

In our opinion the economy is expected to momentum in coming months if the new Trump Administration produces a number of significant policy changes.  Specifically, we believe that later this year or in 2018 we will see both individual and corporate income tax cuts, and legislation that will allow firms to repatriate corporate earnings currently locked overseas back to the U.S. at a favorable 10% rate.  Trump will continue to eliminate all unnecessary, confusing and overlapping federal regulations.  And health care reform of some type is still at least possible.  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 below the full employment threshold.  The housing sector is continuing to climb.  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 2.3% in 2017 and 2.8% in 2018.  The core inflation will  probably slip from 2.2% in 2016 to 1.9% in 2017 but then up to 2.5% in 2018.  The Fed will continue 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.

Stephen Slifer


Charleston, SC

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