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NFIB Small Business Optimism Index fell 0.2 points in August to 94.4
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The Index of Small Business Optimism fell 0.2 points to 94.4, still well below the 40 year average of 98. Five of the 10 Index components posted a gain, four declined and one was unchanged. GDP growth in the last three quarters has averaged 1 percent, not a recession but only matching the growth in the population. Hard to figure how the capital stock producing that output is valued at record high levels as reflected in the S&P 500 for example. Maybe the Federal Reserve targeting asset prices with record low interest rates has something to do with that absurdity. NFIB data also reveal another cause of subpar growth this expansion, a sluggish small business sector, historically half of private sector GDP. Compared to the 1983 expansion which followed even higher unemployment rates, this recovery has been subpar in all dimensions, and particularly in job creation. What hasn’t been subpar is the growth in pages of regulation in the Congressional Record and the size of the Federal debt.
After nine months of 1 percent GDP growth, the economy is set to turn in a better performance. This will result because the denominator in the change calculation is low, and because the huge inventory reduction that knocked a point off the GDP growth rate appears to be over, with an ever so modest increase in plans to build inventory. Consumer spending looks like it will maintain some strength, including car sales, although there are mixed signals on consumer sentiment. It doesn’t appear that capital spending is ready to pick up, but housing will continue to add to growth, even though it is supply constrained, due to a shortage of skilled labor and permitted land.
The Federal Reserve has started its regular “hide the rate hike” game, sending observers looking under every rock of data to see if there are 25 basis points underneath. Most of the “rocks” look like pebbles, there’s not a lot of growth in the landscape, and there’s that darn international thing, the value of the dollar (which is officially not the province of the Fed) and all that. The inflation and employment goals are defined “downward” in terms of what the Fed might accept, along with prognostications that assure “full” attainment by 2018. Comments by Chicago Fed president Charles Evans, in remarks to the Shanghai Advanced Institute of Finance in Beijing, indicate that the Fed thinks it is the determining force shaping interest rates, not markets, a very troubling view. He said, "Long-run expectations for policy rates provide an anchor to long-run interest rates," continuing with "So lower policy rate expectations act as a restraint on how much long-term rates could rise following a surprise over the nearterm policy path." These contortions in policy cannot be maintained. We will regret this arrogance even more over the next decade as our private financial institutions become unable to meet the promises they have made.
Population growth will continue to push fundamental growth ahead with more haircuts and houses. Another 120,000 jobs will keep the unemployment rate steady, but with job openings at the highest level in this recovery, any more than that will likely lower the rate. Health insurance costs keep rising, diverting compensation gains into benefits rather than take home pay. Other regulatory pressures such as a rising minimum wage and mandatory paid leave also put an upward pressure on reports of compensation increases. Capital spending will remain M.I.A., plans are at the highest level for the recovery, matching the previous peak in 2014, but not typical of an expansion and reports of actual spending have been weakening. Inventory investment will reverse the reductions of the first half of the year and that will add to growth. Overall, a return to 2 percent growth for the year is expected.
Posted: September 13, 2016 Tuesday 07:00 AM