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Small Businesses and ECB Hints - June 12, 2018

“The _____est Ever”

This week’s Small Business Optimism Index numbers extend the recent ebullience that we discussed here, with the President and CEO of the NFIB saying,

“Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes. For years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase”.

It appears that their signaling was on the money. Among the highlights of this week’s reports were:

  • Highest reports of compensation increases ever,

  • Highest levels of expansion ever,

  • Highest reports of positive earnings trends ever,

  • Highest reports of price hikes since 2008, and

  • Highest plans to raise prices since 2008

The euphoria is reflected beyond the numbers as well. As the Wall Street Journal reports in “Perks for Plumbers: Hawaiian Vacations, Craft Beer and ‘a Lot of Zen’”,

“The tight job market has forced plumbing companies to offer Silicon Valley-style benefits to keep the talent happy”.

This is in response to a labor market, which according to the president of a 120-employee plumbing and heating business is “the hardest I have ever seen”. Similarly, in the transportation sector, Freight Transportation Research Associates (FTR) reports in their May State of Freight Today (free, sign-in required), that at a recent trucking convention,

“Comments like ‘It’s the best market I have ever seen’ were common even among those who have been in the business 40 years or more”.

Approaching Normalisation

Last week, Yves Mersch, whose name may not be recognizable to the average bear, but is a member of the Executive Board of the ECB, gave a speech at the International Risk Management Conference in Paris. While quick to point out that,

“I should note that we have entered the quiet period before the next monetary policy meeting of the ECB Governing Council, and therefore my remarks should be understood as high-level reflections and not be interpreted as containing any commitments or comments on upcoming monetary policy decisions”.

Under the guise of discussing risk management, there were some interesting nuggets regarding “what the ‘new normal’ for risk management should be.”

“In my view, we should aim to return as closely as possible to the pre-crisis state. But we also need to consider carefully whether some of the temporary measures should remain part of our toolkit. And since we have taken on new risks that will be on our balance sheet for a long time, we may need to retain certain elements of our current risk management framework”.