According to the latest National Federation of Independent Business (NFIB) survey, small business owners are the most optimistic they have ever been, eclipsing the index’s previous all-time high of 108 – which was set during the Reagan Administration way back in 1983. This data, combined with GDP growth projections of 4%+, provides a counterpoint to those who complain that the “real economy” remains sluggish. NFIB considers small business optimism to be a leading indicator, pointing out that this index moved sharply higher in November 2016. Back then, the spike in optimism preceded a doubling in the rate of GDP growth between December 2016 and February 2017. The NFIB describes their typical member as a company employing 10 people and generating roughly $500,000 in annual sales. In our opinion, the fact that these types of “mom & pop” businesses are feeling good is evidence that the Main Street is sharing in the benefits of economic strength.

The Top Concerns for small business owners? Quality and Cost Labor. This is a big change from the previous 30+ years of survey history, during which Government Red Tape and Taxes have represented Top Concerns. If this trend continues, we could see higher wage inflation, which could eventually translate into upward pressure on CPI inflation. To the extent the Hawks in the Fed are focused on tamping down inflation – and we know they are from recent Fed minutes – higher wages could tempt the Fed into more tightening over the next several quarters. Therefore, we would not be surprised to see the 10yr/2yr Treasury yield curve invert sometime in the next 6 to 9 months.