The Index of Small Business Optimism fell 0.9 points to 103.6, but sustained the surge in optimism that started the day after the election. The Index peaked at 105.9 in January and has dropped 2.3 points to date, no doubt in part due to the mess in Washington, D.C. Four of the 10 Index components posted a gain, five declined, and one was unchanged. Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform remain stuck in the bowels of Washington politics. Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.

First quarter GDP growth was finalized at 1.4 percent, a poor performance even after allowing for the peculiarities of GDP accounting. Consumer sentiment (University of Michigan) fell a few points to the lowest reading this year, apparently consumers are not finding the economy looking a lot better going forward. This, even though income grew at the fastest pace in two years. Much of this growth was due to dividends, which most consumers don’t receive as part of their regular income. Spending grew very little and more small business owners reported sales declines quarter on quarter than reported gains. Second quarter growth will be much stronger than Q1, although still likely to be unimpressive. Consumer saving is up and auto sales were sluggish. Over the last 12 months, reports that the government is doing a good job peaked in January at 28 percent but is now at its lowest level since last June when it was 19 percent.

Lower energy prices are once again providing “dividends” to fuel users, consumers, and businesses alike. This ubiquitous benefit is not as powerful for the economy as it used to be because energy production is now significant in the U.S. economy. Historically, lower oil prices impacted producers outside of the U.S. economy but now affect our large and growing energy sector. Even so, energy related profits are dominating the profit picture among the Fortune 500 firms. Cheap oil looks to be a dependable source of reduced costs for the near term.

Headline unemployment rates of 4.3 percent (U-3) and 8.4 percent (U-6) are at recovery low levels. This excludes 4.5 million workers who say they want work but haven’t looked in 12 months. Including them would take the U-6 rate up near 11 percent. Labor force participation rates for men and women remain below levels of the past few decades and “employed part-time for economic reasons” remains above levels typical of an expansion.

A continuation of the high levels of optimism in the small business sector will depend heavily on Congressional progress on the major issues for small business owners: healthcare, tax reform and regulatory relief. The Republicans have the votes to pass any bill that they agree on, but seem unable to agree on any bill, unable to find one that satisfies all the “opinion camps” in their membership. Because of this, by withholding all their votes on anything, the Democrats can block any bill which has only a few senators in opposition. More substantial progress is needed on these major issues if owner optimism is to be sustained and produce accelerated hiring and spending.