US Businesses Thriving Despite the Noisy Political News

US Businesses Thriving Despite the Noisy Political News

US Businesses Thriving Despite the Noisy Political News


  • Washington’s politicians like to take credit for creating jobs.
  • Washington’s macroeconomic policymakers like to claim that their policies have moderated the business cycle.
  • Notably the US economy performs despite Washington actions.

In the US economy, competitive and entrepreneurial, profitable businesses create jobs. Profitable businesses have the resources to grow by hiring more employees and expanding capacity.

In our capitalist economy, businesses tend to increase their profits. Washington’s policies can either slow down this natural process or move out of the way and let businesses do what they do best, i.e., grow their businesses.

President Trump’s proposal to cut corporate tax rates and reduce government regulation on business is very welcomed.

The US Congress is in the midst of the process of passing major tax reform legislation that includes corporate tax cuts.

Shayne and I expect it will happen.

Large corporations will not benefit much because manage the tax code to lower their effective tax rate.

Smaller corporations should benefit significantly.

That is very important, because ADP data show that smaller companies tend to do most of the hiring in the US.

So, consider the following:

1. Small business owners survey. Last week, the National Federation of Independent Business released its monthly survey of small business owners. Tracking the less volatile 6-month averages of the percentages of them who say that their most important problem is 1 of the following: poor sales, taxes, government regulation, or credit conditions. From October 2008 through July 2012, poor sales was the most frequent response in the survey. From 2014 through early 2016, it was a virtual tie between taxes and regulation.

Over the past 12 months through October, the percentage saying that regulation is the biggest problem dropped from 19.5% to 15.7%. This percentage rose during the late 1980’s through mid-1990’s. Then it mostly fell through Y 2008. It rose sharply under anti-business The Hussein Obama Admin.

So far, small businesses are confirming that The Trump Administration is providing them with regulatory relief. Taxes now show up in the survey as the most frequently cited problem faced by small business. If Congress cuts corporate tax rates, then there will not be much for small business owners to complain about.

Actually, the NFIB survey shows that the latest problem for small business owners is finding qualified workers. During October, 35.0% of them said that they have job openings, while 52.0% said that they have found few or no qualified applicants for those openings

The Small Business Optimism Index soared after President Trump was elected, and continues to fluctuate around this year’s cyclical high, which matches the optimism levels of 2003-04. It could match or exceed the record high of July 1983 if corporate taxes are cut.

2. ADP payrolls. Small and medium companies do most of the hiring in the US economy. That makes sense, since they aspire to grow their businesses into big ones. ADP has compiled private-sector payroll employment data since the start of Y 2005 for small (1-49 employees), medium (50-499), and large (over 500) firms.

Since then through October of this year, small and medium firms have hired 6.5 and 5.7-M workers, respectively, while large firms have added just 1.7-M to their payrolls. During October, small and medium companies accounted for 41.1% and 36.0% of private-sector employment, while large ones accounted for just 22.9%.

3. Forward revenues and earnings. S&P 600 SmallCap forward revenues rose to a record high in early November. Industry analysts are forecasting revenues growth of 0.6% this year, 6.1% during Y 2018, and 5.5% during Y 2019. S&P 600 forward earnings was also at a record high during that frame. Industry analysts are estimating earnings growth of 4.9%, 18.3%, and 14.1% this year and over the next 2 years.

Revenues & Earnings

S&P 500 revenues and earnings data were released last week. On balance, there is much to be thankful for.

Below is why Americans should be thankful for, as follows:

1. Revenues. S&P 500 revenues per share rose 6.0% Y-Y to a record high during Q-3. The growth rate in this series on an aggregate basis is highly correlated with the comparable growth rate in US manufacturing and trade sales, which was up 6.4% during September.

2. Earnings & margins. S&P 500 operating EPS (Thomson Reuters data) rose 6.8% during Q-3 to a record high. The operating profit margin per share remained at a record high of 10.8% during Q-3.

3. Forward revenues & earnings. The weekly time series for S&P 500 forward revenues is a coincident indicator of S&P 500 quarterly revenues. The former has been climbing on a steep vertical uptrend in record-high territory since early Y 2016 through last week.

S&P 500 (SPY) forward earnings has been following the same trajectory as forward revenues.

The former is usually an excellent year-ahead leading indicator of actual 4-Quarter trailing operating earnings. The only exception is that forward earnings never anticipates recessions.

So, over all Q-3’s performance would have been better but for the hit that property and casualty insurance companies took from a couple of nasty hurricanes.

HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.37) Neutral (0.10) Very Bullish (0.52) Very Bullish (0.50)

Things are good, best wishes for a Happy Thanksgiving

Stay tuned…

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