This past spring the U.S. economy marked the fifth anniversary of the current economic expansion. I choose to use the word “marked” rather than “celebrated” here because the pace of growth in the economy during the past five years has been frustratingly lackluster. To be sure, slow growth is better than negative growth, and five years is a respectable length of time for a period of economic recovery. But unless you are one of the lucky few in the extreme upper income bracket, this past five years has probably not been excessively comfortable.
Conditions that have historically generated more robust growth during past recoveries have not prompted the same result so far this time. These include: low interest rates, record levels of corporate profits, an all-time high in the stock market and improving access to capital. And it has become increasingly clear that despite these highly accommodative economic fundamentals, the main obstacle to faster economic growth is a pervasive lack of confidence amongst both businesses and consumers.
Ever since the Great Recession ended in 2009, the U.S. economy has struggled to find its groove, its mojo and its swagger. This lack of confidence is stuck at the point of a self-fulfilling prophecy, and the result is vicious cycle of tepid economic growth. Consumers lack the confidence to demand more goods and services because they have doubts about the future trends in employment and income levels. Businesses are hesitant to invest in new employees and equipment because of doubts about near-term trends in consumer demand. So here we are after five years — still waiting for things to pick up.
But at long last things may actually be getting better. The ever-so-tenuous trends in confidence levels are finally starting to rise.
The latest reading for the Index of Small Business Optimism was 96.6 in May (1986=100). The index is compiled and reported each month by the National Federation of Independent Business (NFIB). This was the third consecutive monthly increase for this index, but more importantly from my perspective, this was the highest index value since September 2007. That's right, small business confidence levels just hit their highest mark in almost seven years.