Listen, if you’re a small business, you’re feeling pretty goddamn “tremendous” about Trump’s economy, which is running on a sugar high from late-cycle fiscal stimulus and deficit-funded tax cuts.
Specifically, the NFIB Small Business Optimism Index rose last month to the second highest level in the survey’s 45-year history.
“Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes,” NFIB President and CEO Juanita Duggan said Tuesday, adding that “for years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase.”
And look at this:
Apparently, there has literally never been a better time to expand. Here are some other fun bullet points from the May report:
- Compensation increases hit a 45-year high at a record net 35 percent.
- Positive earnings trends reached a survey high at a net three percent.
- Positive sales trends are at the highest level since 1995.
- Expansion plans are the most robust in survey history.
And here’s a bit about price pressures and wage inflation:
In another interesting marker, a net 19 percent of small business owners are planning price increases, the highest since 2008 and a signal of a strong economy. A net three percent reported positive profit trends, up four points and the best reading in the survey’s history. In addition, a net 15 percent reported higher nominal sales in the past three months, up an astonishing seven points and the sixth consecutive strong month for sales.
“Small business owners are continuing an 18-month streak of unprecedented optimism which is leading to more hiring and raising wages,” said NFIB Chief Economist Bill Dunkelberg. “While they continue to face challenges in hiring qualified workers, they now have more resources to commit to attracting candidates.”
Here’s the thing: that’s all great. But as usual, there are questions about the sustainability of this. Piling fiscal stimulus atop an economy operating at or near full employment is an inherently dicey proposition and as a reminder, the trajectory here is unprecedented:
It’s not so much that anyone doubts whether or not it’s possible to engineer one last euphoric high at the end of an absurdly long in the tooth expansion as it is whether it’s a good idea to do that last line of coke at 4 in the morning after you’ve already blown through the rest of the 8 ball starting at 7 the previous evening.
That is, it’s over. It’s just a matter of whether you’re going to crash now or an hour from now. Economists of course know this, but Trump doesn’t (or if he does, he doesn’t care because by the time gravity catches up with everyone, he’ll be out of office anyway) and it doesn’t seem like a lot of small businesses and investors do either.
As Bloomberg writes, the NFIB report “suggests that Trump administration tariffs, along with freight bottlenecks that have pushed up costs for some businesses, have had little effect so far on small-company sentiment.”
Ironically, the trade tension could be just what the broader economy needs to keep from overheating entirely. With that in mind, recall the following quote I used the other day from JPMorgan’s David Kelly:
A number of years ago, I worked for a Swedish asset management firm and this occasionally required me to journey to Stockholm. On these visits, I was generally impressed by the good humor and intelligence of my Swedish colleagues. I was surprised, however, by two things: The quantity of alcohol they could drink at night and the amount of strong coffee they could subsequently consume the next day.
For the most part, they carried it off without incident. However, it was a fine balance and could easily have tipped either way. In addition, a policy of over-indulgence in both stimulants and sedatives probably carried with it certain unpleasant side effects.
The U.S. economy finds itself in a similarly oddly balanced position today with a strongly stimulative fiscal policy being softened by the dampening impact of trade uncertainty.
For those interested, there’s a ton more on this here:
- Goldman Warns On U.S. Fiscal Policy: ‘We Are Heading Into Uncharted Territory’
- ‘Is Nobody Gonna Tell Him?’ MAGA And The Pedal To The Metal Economy
- ‘This Is Poorly-Timed’: Credit Suisse Ups Rate Hike Forecast Amid Budget Boondoggle
- Albert Edwards: ‘Trump’s Grotesquely Ill-Timed Stimulus Will Be Trigger For Market Implosion, Recession’
But the bottom line is that this is a pedal to the metal approach. “You will ride eternal, tacky and gold leaf”…