Small Business Optimism Highest in 45 Years… The National Federation of Independent Business Small Business Optimism Index rose to 108.8, the highest mark since the index began 45 years ago.
What it means – Small Business owners expect to sell more stuff, spend more on capital equipment and hire more people.
The only knocks in the report were expectations that credit will tighten and fewer business owners expect the economy to improve. That could be a reflection that the economy is doing well, or it could be fear ahead of mid-term elections.
Consumer Prices Up 0.2% in August, Up 2.7% Over Last Year… Core inflation rose 0.1% and stands 2.2% higher than last year.
What it means – The inflation numbers eased a bit from July, when headline prices were 2.9% higher than last year and core prices were 2.4% higher. But we’re still above the Fed’s 2% target. Medical costs gained just 1.6% over last year, which is hard to believe. There was more strength in housing, up 2.9%, and energy, up 10.2%.
The bond markets breathed a sigh of relief because even though inflation is hotter than the Fed’s target, at least we’re not above 3%, which was the top end of the consensus forecast.
Retail Sales Up Just 0.1% in August, Below Expectations of 0.4%… The auto industry lagged again, with sales down 0.8%.
What it means – July retail sales were revised higher by 0.2%, taking some of the sting out of the weak August numbers, but there’s no question that consumers pulled back last month. In addition to weak car sales, which have trended lower all summer, retail sales also slipped in apparel, furniture stores, department stores, and building materials. Gasoline sales increased because of higher fuel costs, which isn’t much of a reason to cheer. Bucking the trend, restaurants had a great month with sales up 10.1%, and online sales jumped 10.4%.
Overall, this could be the turning point we’ve been looking for that will lead to lower GDP growth in the third quarter.
ECB Holds Rates Steady at Negative 0.40% and Confirms End to QE… The ECB stated it would keep interest rates at minus 0.40% at least through the summer of 2019, and as long as necessary to achieve its monetary goals.
What it means – Well, this could get interesting. Today the ECB is purchasing about $16.5 billion worth of a mixture of European government and corporate bonds every month. When the central bank ends the program at the end of this year, the bond sellers, like Italy, will have to find other purchasers. There’s no doubt someone will buy the bonds, but at what interest rate? This could drive up the cost of borrowing for Italy and other questionable economies and potentially cause a mini-scare in the euro.
At the same time, the ECB forecast European economic growth at 2.0% this year and 1.8% next year. Those are aspirational numbers, since Eurozone growth sits under 2% right now and there’s nothing on the horizon that looks likely to boost that number.
All of this together points to a stronger U.S. dollar in the dollar/euro currency pair.
Eurozone Industrial Production Down 0.8% in July, Down 0.1% Over Last Year… The drop in July follows a 0.8% fall in June.
What it means – Falling industrial production is one of the symptoms leading to lower GDP growth. The monthly change was centered in Germany, where production fell 1.8%, and Italy, which also dropped 1.8%. This is particularly troubling because Germany is the biggest economy in Europe, so it has outsized importance in the economic bloc, and Italy appears close to approving a budget that allows for deficits well beyond EU mandates.
All of it spells trouble on the continent for the year ahead.
Real Median Household Income Rose 1.8% in 2017 to $61,372… After falling for seven years, income has risen for the last three years by 10.4%.
What it means – It’s time to party like it’s 1999! No, really. Because median household income is now right back where it was almost two decades ago, the same level it reached in 2007, just before the financial crisis.
It’s worth noting that incomes rose more because workers logged more hours than due to higher wages, which makes sense. With unemployment already low, employers have to get more out of their workers somehow, and longer hours seem like an obvious path.
Fewer people are reporting that they are working part-time even though they desire a full-time position. Wage inflation should be just around the corner, but it’s been lurking just over the horizon for a couple of years now.
U.S. Has Highest Percentage of Foreign-Born Population Since 1910… The foreign-born population reached 13.7% last year, up 0.2% from 2016.
Asian immigrants, including Chinese, Indians, and Koreans, make up a majority of immigrants since 2010. Almost 45% of new arrivals have college degrees, which is a much higher rate than the native-born population. In Ohio, 43% of the foreign-born population have college degrees, while only 27% of the native-born population is college educated.
Republicans Move to Make Consumer Tax Cuts Permanent… Following up on tax reform, Republicans are proposing legislation that will make permanent the individual tax cuts that are set to phase out in 2025.
What it means – That didn’t take long! The deficit-exploding bill passed last year is expected to add $1.5 trillion to our national debt. Making it permanent means it should get worse.
To pass the legislation through budget reconciliation, Congress had to write the law so that it was budget-neutral after 10 years. This meant reversing the individual tax cuts between 2025 and 2027. But no one with a pulse thought that Congress would raise taxes on individuals while letting corporations keep their new-found wealth. It seemed that some future Congress would make the expiring cuts permanent, but no, the current group has taken it upon themselves.
If it passes, it will add another $650 billion to our national debt, and that’s just before 2027. After that, it shoots to the moon.
Data supplied by Dent Research/Delray Beach Publishing
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