Tag Archive for 'economy'

Wall Street’s sour grapes shouldn’t set Main Street’s teeth on edge

“The fathers have eaten sour grapes and the children’s teeth are set on edge.”

When Jeremiah and Ezekiel so prophesied 2600 years ago, it was to offer hope for a time when the Children of Israel would stop having the sins of their fathers visited on them. As a student of the evolution of American capitalism over the past half century, recent observations have moved me to paraphrase the ancients with a new marketplace maxim that I pray will not become prophetic:

“Wall Street has eaten sour grapes and Main Street’s teeth are set on edge.”

Alas, my passage is not about hope for a sweeter time, but rather, a lament of concern for the opposite.  My perspective is informed by three periods of time: The Reagan Boom, post 2008 financial crisis, and post 2016 election. I’ll split the latter into bookends around the other two.

Post 2016 Election
When we awoke on Wednesday, November 9, 2016 to the shocking Electoral College tally showing Donald Trump had preempted the anointing of Hillary Clinton as president, the Dow Jones was already in record territory at 18,323.  By closing bell that day, the Index was up 265 points. Since then, the “Trump Bounce” has driven the Dow Jones through the once-mythical 20,000 level on the way to 21,000, the fastest 1,000 point run in history.

Meanwhile, out here on Main Street, the 44-year-old NFIB Index of Small Business Optimism reported its own historic spike in that sentiment since the election. But a small business can’t eat optimism, and my recent online polling indicates less than a third of our respondents are seeing customer enthusiasm actually ringing a cash register. After a tough decade, unlike investors, consumers are more measured than manic, so it’s likely to take months of sustained optimism to manifest as Main Street sales growth.

The Reagan Boom
Once upon a time, small businesses benefited from an exuberant stock market.

Beginning in the third quarter 1982, the Dow Jones caught a rocket to a 52% increase over the next four quarters, to 3071. And with the exception of a correction or two along the way, including the 1987 “Black Monday” crash, Wall Street didn’t look back until the turn of the new millennium when it closed at a record high of 11,722 on January 14, 2000.

Main Street businesses had much to be excited about because in those days it was an article of faith that “the stock market was a leading indicator of the national economy.” During that same period, as it had always done, the rising Wall Street tide raised Main Street boats too. Indeed, in that 18-year economic expansion, plus a shorter one from about 2002 to 2007, the old “leading indicator” dynamic between Wall Street and Main Street was made manifest during what has been called the “Reagan Boom.” As Wall Street reached new records, annual GDP growth, the favored indicator for small firms planted in the ground, averaged a beautiful 3.5%.

Post Financial Crisis
American macro-capitalism changed significantly beginning in 2007 with the Great Recession, which overlapped the financial crisis of 2008. In the process of surviving those two gut-punches, Corporate America and Wall Street shifted their business practices by focusing inward more than ever before. Inward, meaning investing less in the Main Street economy, to the extent that the once-dependable maxim, “Wall Street is a leading indicator of the economy,” morphed into my observation that Wall Street is now merely a leading indicator of itself – Main Street is on its own. Here’s my evidence:

  • While the U.S. economy was experiencing essentially a lost decade (2007-2016), with GDP growth averaging 1.4%, including barely 2% annually for the seven years following the end of the recession, the stock market spent the last five years setting new records.
  • For three years running, in the first quarters of 2014, 2015, and 2016, two things happened simultaneously that had only happened before in Bizarro World:
    • GDP went perilously negative in 2014 (-2.9%), 2015 (-2%), and achieved only .5% growth in 2016 (U.S. Dept. of Commerce).
    • The Dow Jones reached new record highs in all three first quarters.

Again I ask, what’s wrong with this picture?

Back to the future
There’s been no corporate earnings performance since November 8 to justify spikes of 15% for the Dow Jones and 11% for the S&P. Where’s the fundamentals evidence one would expect to cause equities to wander into unicorn territory? It’s true: The hope of a more business-friendly government is raising optimism in all sectors of the marketplace. But unlike Wall Street, a small business can only spend what it takes in by serving customers. Our top line manna falls from customers, not mania or manipulation.

Smarter people than I are forecasting a stock market correction if, for example, there’s no tax reform this year. My “sour grapes” concern is that having already “clipped its coupons” on the post-election exuberance, a correction this year for any reason it will set the economy back abruptly, derailing Main Street’s bounce before it ever happens.

No one on Main Street begrudges the success of Wall Street. But right now the disconnect between the two once-symbiotic sectors is at once illogical and unsustainable. When the irrational exuberance of Wall Street ultimately reconciles with reality, that event should not cause Main Street to become collateral damage before the latter ever gets to play in the game.

Write this on a rock … When Wall Street eats sour grapes, it should not set Main Street’s teeth on edge.

After a Lost Decade, the REAL Economy Is Ready for Expansion

There’s an old joke about a person paying last respects to an atheist friend. Looking into the casket, the friend lamented, “All dressed up, nowhere to go.”

Thinking about the U.S. economy makes that joke come to mind. Almost a decade since getting really sick, but not dying, America’s businesses – especially the small ones – spent the last nine years all dressed up, nowhere to go.

Since the 2008 financial crisis and associated Great Recession, which actually began Q4 2007 (a year before Barack Obama was elected), the economy has recovered at less than 2% GDP growth – never reaching expansion altitude. Because of the aggregate contribution of America’s small businesses, we know that at least half the missing growth, and millions of new jobs, didn’t come from Main Street. Here why:

One of the historic markers of the small business sector is an optimistic pathology that makes Pollyanna look like Negative Nellie. I never thought I’d see a political/economic environment so demoralizing as to effectively dim the American entrepreneurial floodlight into a glimmer. If you think this characterization is hyperbole, study the NFIB Index of Small Business Optimism – as I have. Alas, that proof in the Main Street pudd’n has been almost a decade of consistent and unprecedented pessimism.

Why so much dourness? Since 2009 the rhetoric and policies of the Obama administration made small businesses feel inconsequential at best, and the enemy at worst. Rhetoric like “You didn’t build that!” doesn’t make business owners feel froggy about capital investments or new hires. Nor do policies like tax increases, Obamacare, piercing the franchise industry’s employer/employee status, the Overtime Exemption rule, and an unprecedented regulatory assault, just to name a few. But wait! There’s more.

Whether through ignorance or ideology, too many talking heads perpetuated the fake news that the economy languished because banks wouldn’t make loans to America’s small firms. But anyone who cared to check heard small businesses calling out these false prophets by reporting, month after month, that they could borrow if they wanted – but didn’t (NFIB). In fact, they’ve spent a decade deleveraging. Which brings me to the single silver lining in all of this: By deleveraging and belt-tightening, small business balance sheets and cash accounts became stronger than ever. I’ll come back to this in a minute.

You’re no doubt wondering how I’ll reconcile my story with the record-setting stock market. First, for generations it was an article of faith that whether stocks were trending up or down, that trajectory was a leading indicator of the economy six months hence. But today, the stock market is merely a leading indicator of itself, and the real economy is on its own. Two prime reasons include:

1) the crossing of the moral hazard Rubicon by the government with bailouts of too-big-to-fail corporations and banks,

2) the Fed’s counterfeiting policies ($3.7 Trillion in QE). Both spawned empty-calorie financial capitalism at the expense of muscle-building market-based capitalism.

Help me reconcile how GDP went negative during Q1 in both 2014/15, and almost did again in 2016, but the Dow reached new record highs in all three quarters. Only in Bizarro World is that a sustainable reality.

And then we had an election. Out here on Main Street, you’d think the phone rang and the warden said it was the governor with good news. Most people don’t need me to catalog the good, bad and troublesome about President Trump. But, warts and all, small business owners are attracted to at least four of his credentials: 1) he knows how to make a payroll; 2) he knows what it’s like when the government gets in your grill; 3) he understands the incongruity of over-taxing and over-regulating a group sorely needed in America today – job creators; and 4) he hates Obamacare.

For the first time in a decade, there is simultaneous, almost giddy optimism on both Main Street and Wall Street. The NFIB Index just reported the highest one-month jump in small business optimism in the survey’s 43-year history. They know those squeaky balance sheets will deliver unprecedented profits in the hoped-for expansion. Meanwhile, incredibly, the Dow-Jones has added 2,000 points since election day, to push through the 20,000-point milestone/firewall.

With all of this pent-up energy, investors and job creators of all shapes and sizes are all dressed up, looking for a place to go. We’re thinking economic expansion, but unfortunately, what happens next is not up to us.

Write this on a rock … Note to President Trump & the Political Class: Don’t screw this up!

Online Poll: How do you feel about the future of America?

The Question: As you contemplate Independence Day, how do you feel about the future of America?

8% - America’s best days are still ahead.
6% - America’s best days are behind us.
83% - America’s in trouble, but we can still turn it around.
3% - Never mind America, the whole world is going to hell!

Jim’s Comments: As you will see in the results of our recent online poll above, more than eight of ten of our respondents have serious concerns about America’s condition and future, with only 8% who’re optimistic about how things are. By comparison, the national average reported by Real Clear Politics — which homogenizes seven large polls — reports two-thirds of Americans think we’re “on the wrong track.” Perhaps the reason our folks rank their concerns a little higher than other polls is because we’re responsible for making payroll every week or two, which, under the current regulatory and economic conditions, is getting more and more difficult.

The last time I saw this level of concern among Americans was almost 40 years ago, during the Carter Administration. In fact, President Jimmy gave the name to the general national feeling that was pervasive during the last half of his one and only term. In a television address, he actually said there seemed to be a kind of “malaise” in the country. He was right.

Jimmy Carter is a good man, but was a poor leader. Granted, he inherited some challenging issues, but he wasn’t a problem solver and didn’t inspire confidence. Does that sound familiar? Replace the name at the beginning of that sentence with Barack Obama and everything to follow fits, with one exception: Obama has had two terms to make a difference. Sadly, if you converted the polling numbers for our national condition under this president’s watch to letters they would spell: malaise.

And my criticism isn’t political — I worship at the throne of results. Two things cause Americans to have a positive outlook: feeling secure and feeling successful. Unfortunately, looking at the facts — and the polls — in front of our eyes, these two areas are not positive.

Here are four simple traits that I would like to see in our next president, and I don’t care which party the possessor of these comes from:

  • Proven leader who hates mediocrity
  • Passionate about America’s greatness
  • Politically incorrect about defending America
  • Believes economy can grow at more than 2%

    What does your list look like? If you’d like to tell me, leave a comment.

  • Mr. President, a recovery is not an expansion

    Dear President Obama:

    For as long as there have been organized economies there have been economic cycles, of which there are essentially three elements:

    • Beginning at the bottom, a recession (sometimes, but rarely, a depression). Historically, sir, recessions are short – often measured in months.
    • In the middle is a recovery, which has the task of healing the defects that caused the downturn while reversing negative growth. Depending on the severity of the recession, recoveries take a little longer, from months to a year or so.
    • And finally, the tide that floats all boats, the expansion. Expansions can last for years, as they did under two of your predecessors, Reagan and Clinton.

    In America, we expect a recovery to be a means to an end, not a way of life. Alas, that isn’t your standard, because perpetual recovery has been our economic fate since you took office, four months before the Great Recession ended in June 2009.

    Recently, in a speech in Elkhart, Indiana, you said this: “By almost every economic measure, America is better off than when I came here at the beginning of my presidency.” Those of us who have made payroll every month of your tenure see things differently, as, apparently, does your own Department of Labor. Two days after the Elkhart speech, the Bureau of Labor Statistics reported a measly 38,000 jobs were created in May – the worst jobs month in six years. And labor participation – the number of Americans who work – has languished under your watch at rates not seen since the last president who manufactured malaise, President Carter. You can’t have an expansion, sir, if people aren’t working.

    Let’s review your economic performance, Mr. President, by the numbers. First, we’ll cut you some slack and throw out your first year in office, 2009. The recession ended halfway through, but ’09 was a horrible year you didn’t create, going almost 3 percent negative. But the next six years, through 2015, the economy averaged a pitiful 2.15% GDP growth. Those are not expansion numbers, sir, and they’re the worst for any president since World War II. Any economist will tell you an expansion is annual growth averaging at least 3%. By the way, 2016 is not trending any better than the past six.

    It’s a misnomer to refer to a president as “handling of the economy,” because there are really only two ways you factor directly into its performance: 1) helping by getting government out of the way of job creators; and 2) hurting by putting government in the way. Mr. President, you’ve set a record for the latter as an unprecedented assaulter on job creators. Your weapons are:

    • Anti-business rhetoric – “You didn’t build that” and referring to successful people as “fortunate” who need to pay their “fair share”;
    • Anti-business laws – both the specter and the reality of Obamacare, plus Dodd-Frank, to name the big two;
    • Anti-business regulations, guidance and executive orders from your EPA, NLRB, Labor and FCC.

    All of these are unprecedented for any president in their tone, scope, and damage. Not to mention the palpable fear and uncertainty that manifested among job creators.

    Here’s more evidence: The NFIB Index of Small Business Optimism, the gold standard for such research, reports the longest stretch of pessimism in the Index’s 43 years during your presidency. This from the sector that creates over half of the jobs and half of the U.S. economy. In my own polling of small business owners, only 9% think you have “been good for the economy,” while more than two-thirds think your policies have been “an economic nightmare.”

    Referring to the economy in the Elkhart speech, you said, “We can make it even stronger.” Who are “we,” Mr. President? The Oval Office door will soon hit you in the backside for the last time. With all due respect, sir, if “we” make “it” stronger, that will happen after you leave.

    Write this on a rock … Out here on Main Street, Mr. President, we’re not going to miss you when you’re gone.

    Now is the winter of our economic discontent

    If you’re wondering how the economy’s doing, here’s what top news outlets are reporting: “U.S. GDP Fizzles in the fourth quarter” (Marketwatch.com); “Economy grinds to a halt in last quarter 2015” (Money.CNN.com).

    But there’s good news: Q1 2016 GDP is projected to be in the 2% range, unlike the two previous first quarters in 2014 and 2015, which were both negative. It’s asking a lot of the other three quarters to put together a good year when you start out in the hole.

    One of the ways I take the pulse of the Main Street economy is through our weekly online poll. Recently we asked this question: “Halfway through the 1st quarter, how’s the local economy producing sales for you?” When I compare the responses we got this time to similar questions over the past four or five years, I see movement toward the middle from the top and bottom. Let me explain.

    The top group, 13% reporting sales as “great,” is lower than past polls, which have been consistently closer to 25%. The bottom group, who are “in trouble,” came in at 3%, down from around 15%.

    Then we have the two in the middle: Those who said their sales volume was off represents about a third of our sample, a little higher before; and those who reported sales as good but not great, increased to half of our responses, up from about 35% in the past. By the way, our poll tracks very closely to the January NFIB Small Business Index and a new AICPA survey.

    Our latest measurement reflects the current condition of Main Street businesses: fewer are doing great, while the “just okay” and “not quite as good” are increasing, with the bottom group succumbing to the insidious condition CNSNews.com just reported as a “record 1o years with the U.S. economy less than 3%.”

    With a decade of stagnation, the last seven years of which can be attributed to the anti-business rhetoric and policies of the Obama administration, any performance improvement by small firms is attributed to better management practices and the kind of dint of will only found on Main Street.

    Economists I regard are predicting 2016 GDP growth of about 2.5%. With the condition of the global economic and geo-political challenges, achieving this level of annual growth will be largely on the backs of the American consumer and the discipline – past and present – of millions of Main Street small businesses.

    Here’s good news no one else is talking about: When the economy finally does convert from our 10-year winter of discontent to an actual expansion, surviving small businesses will be so organizationally and financially sound that they will be set to make more profits than anyone has ever seen.

    Write this on a rock … But only those who survive.

    Poll results: Your local economy and sales

    The Question:
    Halfway through the 1st quarter, what’s the condition of the local economy and your sales?

    13% - Our economy is strong and sales are great.
    50% - Our economy and sales are good, but not great.
    34% - Our economy is weakening — sales volume is off.
    3% - Our economy is very weak, and we’re in trouble.

    Jim’s Comments:

    I think our poll response reflects exactly what the economy is doing: fewer are doing great, more are getting a little better and, after seven years of a moribund economy, most of the troubled companies have already closed up. I’m going to have a lot more to say about this in my Featured Column next week, so stay tuned.

    Thanks for your abiding support of our poll each week. Check out our new one below.

    With the success of Bernie Sanders and Donald Trump, is the political midpoint of the American electorate shifting left?




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