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NFIB Small Business Optimism Index rose 7.4 points in December to 105.8
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The Index of Small Business Optimism rose 7.4 points to 105.8, the highest reading since December 2004. Seven of the 10 Index components posted a gain, 2 declined and 1 was unchanged. Expectations for real sales gains and outlook for business conditions accounted for 73 percent of the gain. The percent of owners viewing the current period as a good time to expand is now triple the average level in the recovery. GDP related hiring and inventor investment showed little gain. Capital spending though, the laggard in this recovery, posted a strong advance, both in reported outlays and plans for spending in the first half. Job creation plans remained at highest levels seen since 2007. Reports of compensation gains were robust while reports of higher prices, though the highest all year, were infrequent.
In a wealthy economy with substantial discretion over the allocation of resources, expectations and sentiment can trigger substantial changes in “macroeconomic activity”. Some of our 300 million consumers can decide to spend a bit more if the future looks brighter. A larger number of our six million employer firms could decide to hire another worker to meet higher expected demand or expand their businesses to handle expected increases in sales. Just how much growth this can generate depends on the availability of unused capacity, in labor and production facilities and debt or capital funds. No doubt we can do better than 2 percent and, for short periods, 3 to 4 percent growth. Ultimately, job creation depends on economic growth, modified by the level of productivity.
What is required is a sensible set of policies that do not squander our scarce resources. Virtually every business owner can identify regulations that have little or no apparent value but have high compliance costs, using up scarce capital and valuable management time. Politicians say they want to create jobs but their regulations and laws passed only increase the cost of hiring a worker, and that is not good for job creation. Economic policies designed to redistribute the pie do not grow the pie, indeed they shrink it by building dependency among some of the population and businesses who need the discipline of competition and the marketplace. Optimistic consumers and business owners are more likely to bet (spend and hire) on a future that seems to hold promise, but to maintain the enthusiasm, reality will play an important supporting role. The appearance of a new customer is much more powerful than the expectation of one. And actual results in Washington D.C. will be much more supportive than “hope and no good change” as we have discovered.
Posted: January 10, 2017 Tuesday 08:30 AM