New Highs in Small Business Optimism

U.S. small business optimism surged to a record in August, according to a new survey by the National Federation of Independent Business. The NFIB Small Business Optimism Index jumped to 108.8 last month, the highest level ever recorded in the survey's 45-year history and above the previous record of 108 in 1983, set during the second year of Ronald Reagan's presidency.

The August figure was up from an already strong 107.9 reading in July. Six of ten indicators tracked by the NFIB increased last month. The biggest gain came in plans to increase inventories.

On top of that, the NFIB noted record readings for job creation plans and the amount of owners saying it was a good time to expand. Capital spending plans reached their highest level since 2007.

Consumers Keep Borrowing

Here's another sign of a strong economy: Consumer borrowing accelerated in July, the Federal Reserve reported yesterday. Total consumer credit rose $16.6 billion in July to a whopping $3.91 trillion. That’s an annual growth rate of 5.1 percent.

The bulk of the increase came from nonrevolving credit, which is typically auto and student loans. Those debts rose  6.4 percent in July after a 4 percent gain in the prior month, for the category's largest increase in eight months.

On the other hand, revolving credit, such as credit cards, rose only slightly in July. Borrowing on credit cards rose by 1.5 percent, although that was a reverse from a 1.4 percent drop in June.

The Emerging Markets Meltdown

While emerging-market stocks were one of the strongest equity performers in 2017, they have collapsed this year. The MSCI emerging-markets index fell into-bear market territory last week, dropping 20 percent from a recent peak. The Vanguard FTSE Emerging Markets ETF lost 3.3 percent last week, its worst week since March. Year-to-date, it is down 11.5 percent.

Meanwhile the S&P 500 has gained 7.7 percent this year. According to Bespoke Investment Group, the divergence between emerging markets and the U.S. stands at a 14-year high.

There are a number of issues facing emerging economies, including a recession in South Africa, Turkey’s high levels of debt and inflation, political uncertainty in Brazil, and Argentina’s central bank raising interest rates to 60 percent in the face of a currency crisis. Additionally, the category has been pressured by a rising U.S. dollar—a headwind for many emerging markets.

August's Jobs Report

The economy had another strong month, adding 201,000 jobs in August, the Labor Department reported this morning. Over the last three months, employers have added an average of 185,000 workers to payrolls per month, slightly outpacing 2017’s average monthly growth of 182,000. The headline unemployment rate remained at 3.9 percent.

The biggest news in the August employment report was a sharp increase in pay. The average wage paid to American workers rose by 10 cents to $27.16 an hour. The yearly rate of pay increases climbed to 2.9 percent from 2.7 percent, reaching its highest level since June 2009.

White-collar professional firms filled 53,000 positions, bringing the total created over the past 12 months to more than half a million. These are the fastest growing jobs in the country.

The Markets and the Election

What does the upcoming election season mean for the stock market? A quick look at historical performance shows that stocks often see rough sledding in the September of years that feature midterm elections. But stocks tend to do just fine as Election Day nears as well as in the aftermath of the vote, regardless of the outcome.

Analysts at UBS note that the S&P 500 has rallied an average of 14.5 percent from the end of August to the end of March around midterm elections. That includes a rocky start, marked by a median decline of 1.4 percent from the end of August through early October, followed by a rally into the next year.

This rally in equities around midterm elections has actually been much stronger than the average returns seen in all other years. Taking a more short-term approach, Deutsche Bank has noted that the three-month period running from a month ahead to two months after the election has produced a median 8 percent gain.

Inflation Curiosity

The good news is that most investors take inflation into account for their retirement savings, according to a recent Nuveen survey of adults with at least $100,000 in investable assets. The bad news: Most investors don't know what the inflation rate is.

Most respondents said they carefully monitored inflation as they planned for retirement, invested or spent money. Some seven in 10 investors correctly recognized that inflation was low at present, and they largely understood that retirees experienced higher inflation rates than the norm.

Yet, 60 percent incorrectly said the U.S. inflation rate was 5 percent or higher or admitted that they were not sure. Only 32 percent came near the real number of 2 percent to 3 percent.

Thoughts for Labor Day

“All growth depends upon activity. There is no development physically or intellectually without effort, and effort means work.” ~ Calvin Coolidge

“If a man is called to be a street sweeper, he should sweep streets even as a Michelangelo painted, or Beethoven composed music or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, 'Here lived a great street sweeper who did his job well.'” ~ Martin Luther King Jr.

"The best way to learn is by doing. The only way to build a strong work ethic is getting your hands dirty." ~ Alex Spanos