A recent article stated that "Companies around the world are starting to share the exuberance that inspired investors" and that there is "increased confidence in the durability of the expansion." First, perhaps we should question whether it was exuberance or a lack of options that inspired investors last year.
It might easily be that a lack of options led to the beginning of the rise and then a herd mentality took over. The stock market can be very emotional and perhaps that did play a role, especially if that emotion was fueled by the 'feel good' of quantitative easing.
Now we will look at the larger question. Is business confidence a good indicator of what will be happening in the US economy? The answer is no, business confidence does not tell us much.
|Small Business General Business Conditions Index||.11||n/a|
|Small Business Sales Expetations Index||.28||2|
|Small Business Optimism Index||.58||11|
The best of this group will be right about half the time, the others are no help at all. We cover this concept of consumer and business confidence indicators in greater depth in our new book, Prosperity in the Age of Decline (Wiley Press). You can pre-order it in about a month from Amazon or Barnes & Noble. It will be published in late July or early August.
We suggest that you stick with the solid, non-emotional indicators that you have seen us use in our presentations and that we cover each month in the ITR Trends Report or in the ITR Advisor. These empirical indicators are not likely to get caught up in the moment or in admiration of the emperor's new clothes.