Saturday, 21 of October of 2017

Economics. Explained.  

Small Business Optimism

October 10, 2017

Small business optimism fell 2.3 points in September to 103.0 after having risen 0.1 point in August.  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.

The decline in September is not simply a hurricane-related event.  NFIB President and CEO Juanita Duggan said, “Small business owners across the country were measurably less enthusiastic last month.””

NFIB Chief Economist Bill Dunkelberg added, “The Index remains very high by historical standards.  Small business owners still expect policy changes from Washington on health care and taxes, and while they don’t know what those changes will look like, they expect them to be an improvement. But the frothy expectations they’ve had in the previous few months clearly slipped in September.”

In our opinion the economy is bouncing along at a respectable pace and should gather 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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