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NFIB Small Business Optimism Index fell 0.6 in February to 105.3
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The Index of Small Business Optimism fell 0.6 points to 105.3, sustaining the remarkable surge in optimism that started November 9, 2016, the day after the election. Three of the 10 Index components posted a gain, six declined, all by just a few points, and one was unchanged. It is encouraging that the Index has held at 105 for three months now, and not faded. Monthly data were not available in the 1983 recovery for comparison when the record Index reading was last reached. Optimism has not faded, but the enthusiasm has yet to be translated into an equally impressive increase in spending and hiring. This will require progress on the agenda that business owners voted for.
The latest government statistics on growth confirmed that, contrary to the claims of many economists, the new Administration has not inherited a “strong” economy. The 1.6 percent GDP for 2016 hardly ranks among our better growth periods and the last eight years have not been much better. Coming out of the recession, small business owners were greeted with a large tax bill, Obamacare, and a fizzled stimulus package that mostly preserved the jobs of government workers, rather than stimulating economic growth. An avalanche of regulations followed, all through the recovery period. The growth we experienced was definitely in spite of government policy, not because of it. The private sector is stubbornly persistent when it comes to growth, regardless of obstacles.
The Federal Reserve will raise rates another 25 basis points, but this still leaves interest rates historically low. The percent of owners reporting paying higher interest rates on their last loan jumped 7 points to 11 percent in January and held at 9 percent in February, after averaging less than 2 percent since the recovery started in 2009. 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 Fed 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.
Evidence on the economy is mixed, the New York Federal Reserve puts first quarter growth at 3.1 percent while the Atlanta Federal Reserve is looking for 1.8 percent. Both have access to the same data. Growth will make everyone, regardless of politics, feel better. However, the gulf between liberals and conservatives is large. The University of Michigan/Reuters poll in February illustrated this, with the Expectations Index at 55 among Democrats, 120 for Republicans and 89 for Independents. The Democrats expect the worst, the Republicans the best. Spontaneous positive references to economic policy were made by a record 28 percent of consumers, 26 percent made negative references. Reality will resolve the gap.
Posted: March 14, 2017 Tuesday 07:00 AM