Trump Euphoria Sets In; Small Businesses Optimism Surges Most Since 1980: What’s It Mean?

by Mish

Leading the charge was “Expect Better Business Conditions,” which shot up from a net 12 percent in November to a net 50 percent last month.

Bloomberg noted U.S. Small-Business Optimism Index Surges by Most Since 1980. Let’s start with Bloomberg comments, then dive into the report.

Bloomberg Comments

• “Rising confidence adds to the economy’s upward momentum,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note. At the same time, the “NFIB membership appears to be disproportionately Republican, so it is possible that the data will start overstating strength, opposite the pattern during the Obama administration.”
• “We haven’t seen numbers like this in a long time,” Juanita Duggan, president and chief executive of the NFIB, said in a statement. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy. Business owners are feeling better about taking risks and making investments.”

Does Rising Confidence Do Anything?

Rising confidence is meaningless (at best) unless accompanied by action. So, how are businesses acting?

All Expectations No Actions

• 88% of the rise in the index was due to Trump euphoria!
• Plans to increase employment: 1%
• Plans to Increase Inventories: 0%
• Plans to make capital outlays: 6%
• Current Job Openings: -3%

Sentiment Trader Offered This Take

Extreme small biz optimism preceded:

* ’87 crash (oops)
* ’95 rally (nice!)
* ’97 crash
* ’98 crash
* ’00 crash
* ’03-’06 rally

— SentimenTrader (@sentimentrader) January 10, 2017

Sentiment Trader Wrong by My Calculation

Contrary Indicators

Close scrutiny shows surges in optimism generally meaningless. However, dips in optimism are typically contrary indicators.

That said, I do take this report to be a very contrary indicator.

Why? Businesses are euphoric but it’s all expectations and no action. How good can that be?

Mike “Mish” Shedlock

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