October 8, 2019

.Small business optimism fell 1.5 points in September to 101.8 after having declined 1.6 points in August.  The August 2018  level of 108.8  broke the previous record high level of 108.0 set 35 years ago back in July 1983.  The current level of confidence is well below that record but remains at a lofty level..

NFIB President and CEO Juanita Duggan said, “As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians.  All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”

Chief Economist William Dunkelberg said, “As more owners become unsure, caution will seep into business decisions. In addition to tariff concerns, the Fed’s decision to cut interest rates raised uncertainty.  Perhaps the country will indeed talk itself into a recession, but not anytime soon. The persistence of unfilled job openings and reports of a deficiency of job applicants indicate that there is still substantial economic optimism about the economy on Main Street.”

In our opinion the economy is expected to expand at an acceptable 2.5% pace this year.  Specifically, we believe that the cut in the corporate income tax rate, legislation that will allow firms to repatriate corporate earnings currently locked overseas back to the U.S. at a favorable 15.5% rate, and the steady elimination of unnecessary, confusing and overlapping federal regulations will boost investment.  That, in turn, should boost our economic speed limit should from 1.8% or so today to 2.5% within a few years.

The stock market hit a record high level in July and is currently only about 3.0% below its peak..   Jobs are being created at a brisk pace.  The unemployment rate is well below the full employment threshold.  Mortgage rates have fallen in the past couple of months from 4.9% to 3.6%.  And investment spending is climbing at a moderate pace.  We expect GDP growth to be 2.5% this year after having risen 2.5% in 2018.  The core inflation should edge upwards to 2.6% in 2019 after rising 2.2% in 2018.  The Fed  cut rates by 0.5% over the summer and seems on course for another 0.25% rate cut in October.  Moderate GDP growth, low inflation, and low interest rates should continue to bolster the stock market in the months ahead.

Stephen Slifer


Charleston, SC