U.S. Economy Ramps While Global Growth Decelerates

The longer American growth outperforms other international nations in rate of change terms, the more likely it is that the tax cuts, fiscal spending boost, and regulation reform are catalyzing the accelerated expansion. The US economy started improving in the second half of 2016 and has continued its momentum since then. Other nations started growing at the same time, but their growth has declined. This is part of the reason why America is winning the trade skirmishes and the dollar is strong. To be clear, the other reason America is doing well in the trade skirmishes is because it imports more than it exports, so it has more leverage.

Small Businesses Have Near Record Optimism

Small businesses are the engine of economic growth. According to the NFIB survey, the environment for small businesses is almost perfect as the 107.9 reading in July was the second best one since the survey started 45 years ago. Only the July 1983 one was higher (by 0.1). Interestingly, in the NFIB small business survey, 60% of the businesses employ 1-5 workers and 88% of the firms employ 19 or fewer workers. This survey is an ‘on the ground’ summary of how the economy is doing.

Source: second best

It’s important to remember the naysayers who claimed the rise in the small business confidence index signaled the expansion was near its end in late 2016 were completely wrong. It’s important to understand why they were wrong. When you look at the chart in hindsight, it looks like whenever optimism is high, a recession occurs. However, the economy is obviously going to be growing in the expansion prior to the recession. Strong optimism doesn’t mean something bad will happen soon. 

Strong growth means the environment is great for business owners. Taxes are low and regulations are growing less, and in some cases decreasing. It’s great news which is sustainable. This isn’t like when investors are exhibiting euphoria and bidding up stocks to bubble levels. This is simply businesses, who have a few workers, saying sales are great and they are looking to expand by hiring new workers. That’s an extremely positive sign which has continued since late 2016. To be clear, it won’t last forever, but there needs to be a catalyst to change the trajectory of the economy. Until there is a catalyst to be negative on growth, record optimism can increase to reach new record highs.