Sunday, June 16, 2019

Manufacturers And Small Businesses: Widespread Optimism

It seems one topic of interest continues to be talk of a recession as a result of the trade and tariff situation. A recent CNN Business article noted, "America's business leaders are growing more worried that the United States will enter a recession by the end of 2020. Their primary fear: protectionist trade policy." Who are these business leaders? "The survey, based on 53 economists, is a leading barometer of where the US business community thinks [emphasis added] the economy is headed." I do not want to minimize the importance of economists; however, recent surveys of the small business and the manufacturing community suggest anything but a recession.

This past week's Small Business Optimism Report from the National Federation of Independent Business (NFIB) was characterized by NFIB as "roaring back and rivaling historic highs." The Optimism Index increased to 105.0 and beat expectations of 102.0 and the prior months reading of 103.5.

Notable in the report are factors related to longer term investment plans:
  • "Business owners reporting capital outlays increased six points to 64%, the highest reading since February 2018. 
  • "30% plan capital outlays in the next few months, up three points and historically high. Plans to invest were most frequent in transportation (45%), manufacturing (39%), professional services (39%), and construction (31%)."
NFIB Chief Economist William Dunkelberg had this to say in the report, "Small business owners are demonstrating a continued confidence in the strength of the economy and are betting capital spending dollars on it. This solid investment performance is supporting ongoing improvements in productivity and real wages."

Another report that seems to not get sufficient attention is the Quarterly Outlook Survey from the National Association of Manufacturers (NAM). In the report summary for the first quarter, it is noted, "Manufacturers continued to report solid growth in activity this quarter, with the sector remaining one of the brightest spots in the economy and hitting nine consecutive quarters of record optimism." The report shows 89.5% of the survey's respondents indicated they were either somewhat or very positive about their company's outlook. This remains at an elevated level of optimism.

A great deal of important points of view are covered in the report, from tax reform, infrastructure and employment. A top concern of NAM members is the inability to attract and retain workers.

The Fed has a two day meeting this week and a great deal of focus will be tuned into the FOMC forecast on Wednesday. Aside from other central bank rate cutting actions outside the U.S., it seems the U.S. economy is in pretty good shape and one with a tight labor market. A rate cut is not likely Wednesday but dovish comments might hint at a rate reduction in the late July meeting. A July cut may occur simply as an insurance policy to head-off  perceived recession risk.

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