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NFIB Small Business Optimism Index fell 1.0 points to 92.9
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The Index of Small Business Optimism fell 1 point from January, falling to 92.9. None of the 10 Index components posted a gain, six posted small declines, and four were unchanged. Overall, a “ho hum” outcome, confirming that the small business sector is not headed up with any strength, just treading water waiting for a good reason to invest in the future. Spending and hiring plans weakened a bit as expectations for growth in real sales volumes fell. Earnings trends worsened a bit as owners continued to report widespread gains in worker compensation while holding the line on price increases. The political climate continued to be the second most frequently cited reason for the current period being a bad time to expand.
New York Federal Reserve President William Dudley continued to reinforce the perception that the Federal Reserve has become preoccupied with short term financial market behavior: "At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside," he said at a conference in Hangzhou, China. "On balance, I am somewhat less confident than I was before." Ignoring a well-established principle that the policy lags are long and variable, the Fed refuses to make clear its longer term view about the economy, design a compatible policy and pursue it regardless of monthly variations in economic statistics which are subject to considerable revision.
Monthly management of monetary policy using data subject to substantial revision is inconsistent with the acknowledged lags in policy and not supportive of real growth which requires more policy consistency. Financial markets of course thrive on the variability such policies produce and support a zero interest-rate policy (ZIRP). Meanwhile, compared to 2009, consumer interest income is down cumulatively over $3 trillion dollars, an unhappy side effect of Fed policies. Low interest rates are great if they occur in an economy that presents investment opportunities. This happens when the economy is exhibiting solid growth which it has not done in this expansion. The 1983 expansion averaged 650,000 new jobs each quarter compared to 450,000 in this expansion with a labor force 30 percent larger.
NFIB data indicate slow growth in the first quarter following the 1 percent growth rate for the fourth quarter of 2015. The GDPNow forecast from the Atlanta Fed is about 2 percent and the NFIB data basically agree. Owners are very pessimistic about business conditions in the coming months and spending and hiring plans have softened. Political uncertainty remains a major concern and the President does not seem inclined to act favorably on any small business owner’s major concerns. Fed policy communications are very disconcerting, giving an impression that the economy is weak. Too much monthly dithering. All of this generates uncertainty, the enemy of spending and hiring behavior that would move the economy forward at a faster pace.
Posted: March 8, 2016 Tuesday 07:00 AM