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NFIB Small Business Optimism Index jumped 1.8 points to 95.2
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The NFIB Index of Small Business Optimism jumped 1.8 points from last month to 95.2. This is the first time the Index has reached 95 since October 2007. The gain is modest but it is still the best reading post-recession. The main contributor to the improved Index came from expected business conditions. Small business owners are a bit more optimistic in this area but still 9 percent more owners expect business conditions to deteriorate than improve.
With the unemployment rate falling to 6.3 percent and headed lower, the Federal Reserve will soon be able to declare victory, leaving economists to debate for years whether QE2 and QE3 really helped or hindered the recovery. The U.S still has $3 trillion in excess reserves sitting at the Federal Reserve, potentially available to support an expansion in loans. The Federal Reserve portfolio has over $4 trillion earning interest that currently accounts for about 10 percent of record-high after-tax corporate profits. Yes, the Federal Reserve is a private firm. This is just one of the major distortions created by the Federal Reserve, and it’s not the worst. Since 2009, consumers have lost trillions of dollars in interest income, a damper on consumer spending. Interest expense per share for the larger firms have fallen by more than 50 percent helping earnings per share to hit record high levels, all based on “unreal” interest rates.
The first quarter preliminary print on GDP growth was 0.1 percent, virtually no change but likely to be revised a bit lower due to the trade deficit. Consumer spending might have been a bit stronger as March data are finalized. Job growth was a lot better than expected for the first quarter, so one wonders where’s the GDP that all these workers are making? Of course, hours worked didn’t go up much, so more people working fewer hours means not so much growth in output. And 800,000 people dropped out of the labor force which accounted for much of the decline in the unemployment rate.
The President is pushing for a 39 percent increase in the minimum wage. He apparently is not listening to the CBO but to political advisors. There is no doubt that raising the minimum wage will cost jobs. The CBO estimates 500,000 will lose all their income and the chance to gain experience and move ahead. On FOX, a supporter argued that McDonalds made $5 billion and could afford to give up some, forgetting that individual franchises and company stores must stand on their own. If all the independent burger joints suddenly put a golden arch over them and we added them up to get one big profit number, that doesn’t change the economics for each firm. Arguing that this will produce more spending assumes the increased labor costs are covered by the Federal Reserve I guess, since in reality every dollar a minimum wage worker gets will come out of the pockets of customers, and owners, and those who lost their job who will have less to spend, a wash at best. Some really poor thinking.
The President most recently touted policies such as raising the minimum wage, extending unemployment benefits and passing some sort of equal pay for equal work legislation as his plan to boost the economy. He also mentioned one billion in his budget for “climate change and a Keystone delay that will surely boost the economy. This makes it quite clear that politics drives policy recommendations, not common sense. And governing through politics will not improve owner optimism. It’s going to be another nasty election. Most of the policy changes that would improve small business owners’ views of the outlook won’t happen. Growth will push ahead, boosted by population growth, depreciation driven demand for replacement and continued healing from the recession damage, but no rapid pickup in spending or hiring.
Posted: May 13, 2014 Tuesday 07:30 AM