Optimism Doesn’t Match Economic Growth


In this article, we will be showing various data points from different perspectives. We like to give you all the information to make the best possible decisions. The goal isn’t to push any narrative, political agenda, nor market perspective. The value provided is helping you understand the details behind various economic reports and indicators. The explanations give you an understanding of why you can’t blindly follow any indicator. There are always reasons behind changes in the data. You need to understand the whole picture when reviewing economic reports or you will come to the wrong conclusions. It’s super easy to display a few charts which fit a narrative, but it’s difficult to explain where these charts can be wrong. Charts and indicators show the past, but past is not the future. 

Biased Small Businesses

The NFIB small business survey indicates small businesses are the most optimistic in the 45-year history of the survey. The economy was relatively strong in the first half of 2018, but it wasn’t the best in 45 years, so there’s a disconnect between the optimism of small businesses and reality. Small businesses drive economic growth; it’s tough to get data on them because they don’t report earnings because they are private entities. Just because the NFIB survey is a relatively rare piece of information on small businesses, doesn’t mean we should blindly follow it.

Source: Renaissance Macro Research

The optimism in 2018 doesn’t match economic growth. The chart above proves this as the NFIB implied GDP growth rate is way higher than the actual GDP growth rate. This is one of the biggest gaps in the past 25 years. The blue background shading shows when there were Democratic Presidents and the red bars show when Republicans were President. As you can see, small businesses are more optimistic when a Republican is President. Whenever any data point makes a 45-year record or something of similar proportions there needs to be a confluence of factors to make it happen. Small businesses love the growth rebound, the tax cuts, the regulatory reform, and they are politically biased to favor Republicans.

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