Wednesday, 20 of June of 2018

Economics. Explained.  

Small Business Optimism

June 12, 2018

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Small business optimism jumped 3.0 points in May to 107.8 after having edged upwards by edged upwards by 0.1 point in April to 104.8.  The May level was a record high level for this series.

NFIB President Juanita Duggan said,  “Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes. For years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase.”  Buried in the details of the report were such milestones as compensation hitting a 45-year high record, positive earnings trends reached a survey high, positive sales trends are the highest since 1995, and expansion plans are the most robust in survey history.  It does not get any better than that.

NFIB Chief Economist added that, “Small business owners are continuing an 18-month streak of unprecedented optimism which is leading to more hiring and raising wages.”

In our opinion the economy is expected to gather momentum in coming months in response to a number of significant policy changes.  Specifically, we believe that the cut in the corporate income tax rate, legislation that will allow firms to repatriate corporate earnings currently locked overseas back to the U.S. at a favorable 15.5% rate, and the steady elimination of unnecessary, confusing and overlapping federal regulations will boost investment.  That, in turn, should boost our economic speed limit should from 1.8% or so today to 2.8% within a few years.

The stock market has experienced a correction in the past several months but has rebounded but has rebounded and is now only 3% below its record high level.    Jobs are being created at a brisk pace.  The unemployment rate is well below the full employment threshold.  The housing sector is continuing to climb.  And now investment spending has picked up after essentially no growth in the past three years.  We expect GDP growth to climb from 2.6% in 2017 to 2.8% in 2018.  The core inflation will  climb from 1.8% in 2017 to 2.4% 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 prior to yearend.

Stephen Slifer

NumberNomics

Charleston, SC


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