ECONOMIC NEWS:  Consumers, small businesses of two minds about economy

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As consumer sentiment, measured by the University of Michigan’s Consumer Sentiment Index, rises to its highest level since 2004, the mood among small businesses is growing less optimistic.

The index’s preliminary reading for October climbed by six points, to 101.1, from September, suggesting that the economy could continue to expand into 2018.

“The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement. “The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid-2018, which would mark the second-longest expansion since the mid-1800s.”

Curtin said the fresh survey results reflect not only optimism, but also “an unmistakable sense among consumers that economic prospects are now about as good as could be expected.”

Curtin said consumers “anticipate low unemployment, low inflation, small increases in interest rates, and most importantly, modest income gains in the year ahead. It is this acceptance of lackluster growth rates in personal income and in the overall economy that signifies that consumers have accepted, however reluctantly, limits on the pace of improving prospects for living standards.”

Consumers backed up their survey opinions with cash and credit cards in September. The Commerce Department said retail sales rose 1.6 percent, the most since March of 2015, as demand increased for building materials and motor vehicles in areas damaged by hurricanes Harvey and Irma and receipts at service stations rose.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 percent last month after being unchanged in August.

Reuters said the so-called core retail sales correspond most closely with the consumer spending component of the gross domestic product. The news service also said the rebound in core sales suggests the hurricanes will have only a modest effect on the overall national economy.

The increase in gas prices, which occurred after Harvey damaged major oil refineries, led to an 0.4 percent increase in the Producer Price Index. MarketWatch said the rise in the index boosted the 12-month rate of wholesale inflation to 2.6 percent. That was the highest level since February of 2012.

The financial markets had another strong week. The Dow Jones industrial average rose 0.4 percent last week, and the S&P 500 index and the Nasdaq composite index each climbed 0.2 percent. The Dow and S&P have risen for five successive weeks; the Nasdaq rose for the third week in a row.

Through Friday the Nasdaq had gained 23 percent, the Dow had risen about 15.7 percent and the S&P 500 was up 14 percent this year.

America’s small businesses are, however, less upbeat, disappointed by the inability of the Trump administration and Congress to pass business-friendly legislation. The NFIB Index of Small Business Optimism fell in September from 105.3 to 103 and the decline occurred nationwide, not just in states hurt by the hurricanes in Texas and Florida.

The National Federation of Independent Business said the number of small business owners who expect better sales declined by a net 12 points. Owners who believe now is a good time to expand dropped a net 10 points. Six of the index’s 10 components fell in September.

“The drop-off was consistent around the country, regardless of region, and it’s likely that members in Florida and Texas were underrepresented in this survey because of the obvious disruptions,” NFIB chief economist Bill Dunkelberg said in a statement. “The adjusted average employment change per firm dipped to -0.17, which is a significant drop in hiring activity.

“The index remains very high by historical standards,” Dunkelberg added. “Small business owners still expect policy changes from Washington on health care and taxes, and while they don’t know what those changes will look like, they expect them to be an improvement. But the frothy expectations they’ve had in the previous few months clearly slipped in September.”

MarketWatch said the NFIB’s index climbed after Donald Trump was elected president and Republicans controlled the House and Senate. The group expected rapid results favoring business interests, but the GOP did not succeed in repealing the Affordable Care Act and Congress remained in gridlock.

This week, economy watchers will see September figures on housing starts, building permits and home resales and The Conference Board will release its Leading Economic Index for the same month. The Federal Reserve will issue its Beige Book report on regional economic conditions across the country.

The Conference Board’s index had solid increases during the previous three months. Another gain would show that consumers aren’t the only actors in the economy who are feeling good about their roles.

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