I’m not generally a fan of the old “what could go wrong?” meme.
Rolling that quote out to introduce a chart or to otherwise malign an ostensibly upbeat piece of economic data on the implicit notion that ebullient sentiment now everywhere and always portends doom later, shows a lack of creativity when it comes to deploying sarcasm in the service of market analysis.
That said, I’m going to use it here to describe the latest read on the NFIB’s small-business optimism index, which hit the highest level in its 45-year history in August. Have a look at this:
(Bloomberg)
For context, the latest reading tops the long-standing record of 108, set in 1983 when the Gipper was running the show.
The proximate cause for the euphoria: Tax cuts and deregulation. “The small business engine continues to roar with the dramatic change in economic policies since November 2016,” the survey said. Here’s some further color from NFIB President and CEO Juanita Duggan:
Today’s groundbreaking numbers are demonstrative of what I’m hearing everyday from small business owners — that business is booming. As the tax and regulatory landscape changed, so did small business expectations and plans.
34% of business owners surveyed said now is a great (“again”) time to expand their businesses – that’s up two points from the July survey. The net percentage of employers anticipating job creation rose to 26%.
(Bloomberg)
All of that is obviously good news. As regular readers know, we’re not in the business of spinning data in the interest of perpetuating a specific narrative.
What we are in the business of doing, however, is reminding you that the policies that are behind this optimism are based on a lunatic plunge into late-cycle fiscal stimulus. This is being financed with debt. The tax cuts are going to balloon the deficit and have set the U.S. on an even more unsustainable fiscal trajectory than it was already on. It makes no sense to malign the previous administration for fiscal profligacy and not apply the same criticism to this administration.
So while it wouldn’t be fair to characterize the optimism as somehow bogus (the ebullient sentiment is “real”, after all), it would be fair to suggest it’s misplaced. Because if small-business owners understood the inherently ephemeral nature of this economic sugar high, they would be doing the opposite of what they’re doing right now. That is, they would be preparing themselves for the inevitable come down.
That’s not to say anyone should be overtly pessimistic, but the writing is on the wall when it comes to whether recent economic gains are sustainable.
Ultimately, the notion that the country should effectively mortgage its future in the service of inflating the ego of a charlatan (which is what the U.S. is doing by piling deficit-funded stimulus atop a late-cycle expansion), is bound to be seen in retrospect as the quintessential example of a “what could go wrong?” moment.
