SMALL BUSINESS OPTIMISM SKYROCKETED IN DECEMBER
The Index of Small Business Optimism rose 7.4 points to 105.8, the highest reading since December 2004. Seven of the 10 Index components posted a gain, 2 declined and 1 was unchanged. Expectations for real sales gains and outlook for business conditions accounted for 73 percent of the gain. The percent of owners viewing the current period as a good time to expand is now triple the average level in the recovery. (…)
Seventy-three percent of the gain in the Index was accounted for by more positive views about business conditions six months from December and improvements in real sales volumes. Improved views about the climate for expansion added another 15 percent, so more optimistic expectations account for 88 percent of the Index’s improvement, indicating little improvement in the other seven components and more importantly in the measures directly related to economic growth.
Job creation plans did improve 1 point reaching a nine-year high level. Plans to increase inventory investment were unchanged. But there was one piece of good news on this front, capital spending plans going forward bumped up 5 percentage points. Capital expenditures have been a real laggard in this recovery because the outlook for earning a decent after-tax return on the investment with low consumer sentiment on top of an avalanche of costly regulations and higher taxes was not good. The Federal Reserve responded to this problem with low interest rates, but that did not overcome the larger handicap.
If this optimism continues, it will translate into spending plans as in the case of capital spending plans in December and ultimately into reports of actual hiring, inventory spending and capital outlays.
U.S. Consumer Borrowing Strengthens
Consumer credit outstanding increased $24.5 billion during November (6.7% y/y) following a $16.2 billion October rise, revised from $16.0 billion. Over the past ten years, there has been a 46% correlation between the y/y growth in consumer credit and y/y growth in personal consumption expenditures.
Revolving consumer credit surged $11.0 billion (6.4% y/y) after a $2.4 billion rise. It was the largest monthly gain since March.
Nonrevolving credit advanced $13.5 billion (6.8% y/y) after a $13.8 billion increase.
The Daily Shot illustrates the build up:
Divisions Lurk Inside Trump’s Economic Team With free-trade adversaries on one side of his economic team and market-oriented advisers from the Washington and Wall Street establishments on the other, Donald Trump has charted an unpredictable course.
(…) A flat organizational structure could set these and other individuals against each other as they compete for Mr. Trump’s support. Uncertainty about his economic agenda is heightened by how Mr. Trump, who has never held public office, has changed his mind on some policy issues while saying little about others. (…)
Tensions are already surfacing now that Mr. Trump must translate campaign promises into a governing agenda. Mr. Trump and other Republican lawmakers are voicing concerns over how quickly to advance a repeal of Mr. Obama’s health-care overhaul, which could boost deficits and leave millions without health insurance. The new administration also may ask for billions of dollars for border security after Mr. Trump repeatedly promised to make Mexico shoulder the cost of new security measures. (…)
Perhaps the starkest example of policy idiosyncrasy comes with Mr. Trump’s pick for budget director, Rep. Mick Mulvaney (R., S.C.), a committed deficit hawk. He has been deeply critical of Republicans who have sought higher spending and spoke skeptically of Mr. Trump’s infrastructure-spending push just weeks after the November election. (…)
One question now is whether Mr. Mulvaney will prevail on Mr. Trump to rein in his big-spending agenda, or whether he might be tasked by Mr. Trump to sell a short-term boost in federal outlays to his fellow, skeptical House conservatives. (…)
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Amazing chart!
(The Daily Shot)
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Dollar Falls Again as Euphoria Over Trump’s Policies Fades
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Trump Backs Delay Of Obamacare Repeal After Pressure From Rand Paul
EXCLUSIVE OUTLOOK FROM WALL STREET’S #1 ECONOMIST ED HYMAN
In an exclusive interview with Consuelo Mack, Ed Hyman, Wall Street’s # 1 ranked economist for a record 36 years describes how much the financial world has changed in the last year. He and top investor, Matthew McLennan describe what it means for the U.S. economy and markets.
China vows to contain corporate debt levels as inflation heats up China vowed on Tuesday to contain high company debt levels and further cut excess coal and steel capacity, as Beijing attempts to maintain solid and more balanced economic growth while avoiding destabilizing asset bubbles.
IRS Says to Expect Delays for Tax Refunds
Investors Shouldn’t Put Too Much Stock in Economic Forecasts Forecasting the weather and forecasting economics are very similar, both trying to predict complex systems that can be tipped from one state to another by very small changes.
(…) The U.S. will grow 2.25% this year, according to the average forecast collected by Consensus Economics last month. There’s a range (the lowest is 1.7%, the highest 3%), but economists have been more tightly clustered at the end of a year only twice since Consensus started collecting data in 1989. (…)
Studies by Prakash Loungani, chief of development economics in the International Monetary Fund’s research department, and collaborators have shown the failure to forecast recessions. Not one of the 62 recessions in 2008 and 2009 world-wide was predicted by the average collected by Consensus Economics by September of the year before. For the U.S., the economy’s only ever been forecast to shrink after a recession has already begun. (…)
Specific forecasts for the economy must come with probabilities and clear assumptions—and the assumptions need to be critically examined by users of the forecasts, not hidden in the models or the appendix. (…)
Perhaps the best investment use for economic forecasts is as a monitor of excessive confidence, something that often indicates that the market’s run too far in one direction.
At a time that uncertainty about economic policy is supposedly soaring, the close agreement among economists about the growth outlook suggests that they are unprepared for surprises. A year ago, such agreement was one more sign of crowded positions in markets, and it was quickly followed by plunging shares and bond yields. After the stunning Donald Trump-inspired switch from bonds to shares, the market looks similarly vulnerable to any bad news today.
Companies Struggle to Fund Pension Plans
(…) The funding gap is at its highest level since PwC began its tracking in 2012. In the U.S., the estimated 2016 pension deficit for S&P 1500 firms with defined benefit plans is $408 billion, up from $404 billion at the end of 2015, according to consulting firm Mercer Investment Consulting LLC. (…)
Firms with defined-benefit plans have guaranteed a fixed payout to members. This makes companies, not employees, bear the brunt of fluctuating interest rates, bond and gilt yields and inflation. (…)
Posted yesterday:
The Lady and the Trump
- This am from Bloomberg: What Happens When the President and the Fed Move in Opposite Directions?