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The updated small business optimism index summarizes the major forces that are currently impacting the U.S. economy.

The NFIB Small Business Optimism Index was updated through May and the information contained in the survey is a good summary of the current economic environment. 

The headline number declined marginally (-0.2 points) to 99.6. 

The underlying components reveal that the outlook is declining.  This is occurring at a time when job openings and hiring plans are hitting new highs.  

This is unusual as companies do not typically look to increase their payroll if they are not optimistic about the future.  Some of the issues that could be holding back the outlook for small businesses are prices and labor supply.  The prices paid and price plans for small businesses both reached new highs.  Within the labor market section, companies reported rising compensation costs and a rising expectation for future compensation costs.  They also reported a lack of qualified applicants as their number one problem and the jobs hard to fill index reached a new high.

Source: Hedgeye.

The pressure of rising costs and a lack of labor supply are concerns across the economy and are some of the main risks to asset prices.  Government interest rates have declined in the U.S. and other developed markets, while quality factors and less cyclical industries have outperformed recently, and large caps have outperformed small caps.  This could indicate that investors have started to become concerned about the outlook for economic activity.   

Source Koyfin.

Source Koyfin.

Source Koyfin.

Source Koyfin.

Source Koyfin.

Source Koyfin.

At the same time, equity volatility and oil volatility are declining, and high yield credit spreads remain low. 

Source Koyfin.

Source Koyfin.

Source Koyfin.

At this point, there is not enough evidence from the economic data or market signals to suggest that the trend of accelerating economic growth and inflation is changing.  However, we will continue to monitor the situation and provide updates on the data and our current thinking. 

 



 

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.

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