Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

U.S. Economy Escape Velocity, But Small Business Optimism Very Low and Headed in the Wrong Direction

Economics / Economic Recovery Apr 14, 2010 - 01:57 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleIf the US economy was about to reach "escape velocity" as Larry Summers says, small business optimism would not be in the gutter and sinking.


Thus, proof that Larry Summers is in Fantasyland can be found in a NFIB report that shows Small Business Optimism Declines in March.

The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8. The persistence of index readings below 90 is unprecedented in survey history.

“The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.”

The index has posted 18 consecutive monthly readings below 90. In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings.

Employment

While actual job reductions may have halted, plans to create new jobs remain weak. Over the next three months, 7 percent plan to reduce employment (down one point), and 15 percent plan to create new jobs (up two points), yielding a seasonally adjusted net negative 2 percent of owners planning to create new jobs, weaker than February and still more firms planning to cut jobs than planning to add.

Capital Spending

The frequency of reported capital outlays over the past six months fell two points to 45 percent of all firms, one point above the 35-year record low reached most recently in December 2009.

Sales and Inventories

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months improved 1 point to a net negative 25 percent. Widespread price cutting continued to contribute to reports of lower nominal sales. The net percent of owners expecting real sales gains lost three points, falling to a net negative 3 percent of all owners, seasonally adjusted.

Inflation

The weak economy continued to put downward pressure on prices. Eleven percent of the owners reported raising average selling prices, but 29 percent reported average price reductions.

Earnings

In March, earnings trends declined with a net negative 43 percent of owners reporting positive profit trends.

Deflationary Report

The NFIB report is certainly deflationary. There is no ability for businesses to pass on cost increases nor any reason for small businesses to go on a hiring spree. Housing starts and small businesses optimism typically lead the economy out of recession. Both are absent.

In February, "poor sales" was the top concern of small businesses, and with expected earnings sentiment at negative 43 percent, it is all but certain small businesses are not about to go on a huge hiring spree.

Layoffs have stabilized, but there is no driver for jobs. However, it does take 100,000 to 125,000 jobs a month just to hold the unemployment rate steady.

Washington Does Not Get It

What Bloomberg columnist Caroline Baum said a month ago remains true today. Please consider Clueless in the Capital Meets Small-Business Ire

“Washington doesn’t get it.”

That generic statement is tripping off the tongues of populists and Tea Partiers, business groups and bankers alike. In short, the public is peeved at the politicians.

I heard it this week from William Dunkelberg, chief economist of the National Federation of Independent Business, who used his group’s latest survey to opine on Washington’s deaf ear for helping small business.

The president and Congress “pay lip service to the fact that small business generates half of private-sector GDP and employs 60 percent or more of private-sector workers,” Dunkelberg says. As far as Washington’s efforts to help this sector of the economy, “instead of stimulus, give consumers a tax cut,” he says.

Econ 101

The Right points to uncertainty over looming tax increases (aren’t death and taxes life’s two certainties?) and health-care mandates. The Left says the problem is banks aren’t lending.

The truth is a bit of both and something more basic. Small- business owners list “poor sales” as the numero uno problem. And the jobs tax credit for hiring new workers, proposed by President Obama and embraced by Congress, won’t do much to help. Employers aren’t about to pay a new worker $40,000 to earn a $5,000 credit unless that worker generates $35,000 of revenue, Dunkelberg explains. That’s Econ 101 (see “marginal revenue product” or “profit maximization”), a course most of our elected representatives seem to have missed.

The tax credit for hiring “has absolutely no impact on our decision-making,” says Phil Kenny, president of Trucks Unique, an Albuquerque, New Mexico, company that customizes pick-up trucks for commercial and individual purposes. “We have no tax liability to take a credit against.”

Tax Credits for Hiring an Inane Idea

Tax credits are a ridiculous waste of taxpayer money. Businesses will hire when they need to hire and not before. Not a single job will be created or saved by tax credits for hiring.

Moreover, and as Baum pointed out, we have the ridiculous proposition of Obama raising taxes and mandating health care, both of which hurt small business, while proposing tax-credit trinkets in return.

Instead, small businesses would be better served by tax cuts across the board. I covered this earlier today, before the NFIB report came out, in Mish Mailbag: IBM Abandons U.S. Workers

The solution is lower but equal taxes across the board, not higher taxes as President Obama is clamoring for. If one insists on a skew, it would be far better from a jobs standpoint to defer taxes in the US than overseas.

My own personal preference would be to slash the corporate tax rate to 10% or lower, preferably zero.

This would level the playing field between small and large corporations. It would also eliminate the need for a whole army of lawyers and lobbyists whose only function is to game the system.

Finally, elimination of corporate taxes would spur job creation at small businesses, right here in the US, where we desperately need Jobs. To top it off, money would flow to the US, in dollars, instead of overseas in some other currency.

President Obama's solution is ass backwards.

Inquiring minds may also be interested in "Banking System Still Quietly Insolvent" ; Larry Summers' Imagination Reaches Escape Velocity

One thing this economy desperately needs is to escape solutions offered by Larry Summers and President Obama.

The way to do that is throw the bums out and elect some legislative representatives who understand something about how the economy really works. For a list of candidates worthy of your support, please see Rice Lake Wisconsin Elects 19 Year old Ron Paul Fan as Mayor.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules