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There Is Little Reason to Believe Economy Faltering

There Is Little Reason to Believe Economy Faltering

Tuesday, 12 February 2019 01:22 PM Current | Bio | Archive

INDICATOR: December Job Openings and January Small Business Optimism

KEY DATA: Private Openings: +198,000; Quits (Private): +6,000/ NFIB: -3.2 points

IN A NUTSHELL: “Faltering small business optimism may look like a worry, but with job openings at record highs, there is little reason to believe the economy is faltering.”

WHAT IT MEANS: The government may not have been working for a while but it sure looks like the private sector was. In December, job openings rose to the highest level since the government began tracking the data eighteen years ago. The rate of openings, which is the number of openings as a percent of total employment and openings, was back at its August 2018 high. In other words, firms are in desperate need of new workers. They are doing their best to keep up with the growing need as hiring improved. In addition, they are also limiting layoffs and apparently satisfying workers, as the number of people quitting their positions has remained in a fairly tight range. The rate of quits is still quite high, but not as great as would be expected given the huge number of openings.

Small business owners look like they are getting more and more uncertain about the future. The National Federation of Independent Business’s Small Business Optimism Index fell moderately, again, and is now where it was just before the 2016 election. Hiring plans are dropping sharply, sales are no longer improving as strongly as they had been and hopes about future demand, capital spending and the economy are dissipating.

MARKETS AND FED POLICY IMPLICATIONS: If the “agreement in principle” actually holds, this year’s government shut down threats will be gone and some of the concerns facing the economy will be pushed aside. But the real issue is trade and movement on those negotiations is critical. While government dysfunction affects confidence the most, trade concerns could create major real economic problems. A trade agreement might not create any major lift to growth, but a disagreement could reduce it greatly. That said, businesses right now are still out there trying to find workers to meet the growing demand. Payrolls are being padded, but not so fast that the backlog in openings is being whittled down. That is good news for workers but not necessarily for businesses, whose compensation costs are rising. And that is happening as the tax cut induced sugar high is fading. That does not bode well for either inflation or corporate profits. What all this means for the Fed is anyone’s guess, as I don’t think even Chair Powell has any idea where the Fed might be in six months. Are rates high enough to provide sufficient weapons to fight the next slowdown? I doubt it. But Mr. Powell would have to signal a rethinking of his rethinking of the direction of rates before the Fed could hike rates up to the level most think is needed. Indeed, if you are going to raise rates, the best time is when the economy is solid, which it is right now. If that sounds as if I am being critical of the leadership of the Fed Chair, well you are correct. As for the equity markets, a budget agreement and especially a trade agreement, regardless how minimal it is likely to be, would be considered great news. But that could be months away. One thing we know about the Chinese is that they don’t like to agree to something they don’t want to agree to and you know they don’t want to agree to much of what the U.S. wants them to agree to. Got that?

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Faltering small business optimism may look like a worry, but with job openings at record highs, there is little reason to believe the economy is faltering.
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Tuesday, 12 February 2019 01:22 PM
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