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NFIB Small Business Optimism Index rose 0.1 in January to 105.9
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The Index of Small Business Optimism rose 0.1 points to 105.9, the highest reading since December 2004, sustaining the remarkable surge in optimism that started post-election. Five of the 10 Index components posted a gain and 5 declined, but all by just a few points. After the stunning increases seen after the election, all of the Index components held near their record high levels. Job openings and job creation plans both posted small gains, confirmed by a huge increase in the net number of jobs added by the average firm, a gain subsequently confirmed by the BLS in its February jobs report. As “good feelings” are translated into actual hiring and spending, GDP growth should see an uptick. The inflation outlook remained stable, there was no surge in reports of higher selling prices.
Although many economists claim that President Trump is inheriting a “strong economy”, government statistics beg to differ. GDP grew only 1.9 percent in the fourth quarter of 2016 and an average of 1.6 percent for the entire year. This is the result of eight years of poor economic policies and gridlock in Congress. Congress now has the opportunity to undo harmful, anti-growth policies. For small-business owners, the success or failure to produce positive results will be reflected in future reports measuring small business optimism and their hiring and spending activity.
The January jobs report surprised pundits (and disappointed critics), coming in strong and well ahead of “consensus”. NFIB survey results anticipated the strong showing as their optimism gets translated into hiring action. Gains in expected sales require more workers to produce output and handle sales. The increase in labor force participation was a welcome sign, suggesting that labor markets are not as tight as the unemployment rate indicates (which went up) and that, as opportunities materialize and compensation rises, more workers will re-enter the labor force.
The Federal Reserve left interest rates unchanged in February’s meeting but sketched a more positive view of future economic developments. Most observers expect three rate hikes this year, which would still leave interest rates historically low. The percent of owners reporting paying higher interest rates on their last loan jumped 7 points to 11 percent, well above most readings since 2009 which were historically very flat. The interest rate is one of the most important prices in the economy, allocating capital to its highest valued uses. Since 2009, there has been very little movement as Federal Reserve policy has paralyzed the functioning of interest rates. The sooner the Federal Reserve restores the role of interest rates, the healthier the economy will become.
Posted: February 14, 2017 Tuesday 07:00 AM