Saturday, 19 of August of 2017

Economics. Explained.  

Small Business Optimism

August 8, 2017

Small business optimism climbed by 1.6 points in July to 105.2. after having declined 0.9 point in June.  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 six months represents a hot streak not seen since 1983.

NFIB President and CEO Juanita Duggan said, ”The Index peaked at 105.9 in January, just 0.7 points above the July reading. Main Street was buoyed by stronger customer demand despite the dysfunction in Washington, D.C.”

In our opinion the economy is bouncing along at a respectable pace and should gather momentum in coming months as the new Trump Administration will hopefully produce a number of significant policy changes.  Specifically, we believe that later 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.  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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