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The Economy is Booming. Why Should Anyone be Surprised?

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This article was published by The McAlvany Intelligence Advisor on Friday, April 13, 2018:

For a small fee, anyone can download the Harvard Business School’s case study on Apple, Inc. In a nutshell, Apple began in April, 1976 with three employees, no customers, and no revenues. Today it has 123,000 employees, millions of customers, and revenues approaching a quarter of a trillion dollars.

This confounds Keynesians who believe, steadfastly and in the face of overwhelming evidence to the contrary, that it is consumers who drive the economy. On just about every business news show on evening television, one can hear something like “consumers, which are responsible for 70 percent of the economy,…” etc., etc. How do they explain the growth of Apple? Steve Jobs and his two associates developed a product that they hoped might be needed. The iPhone was merely a figment of Jobs’ imagination. There was no call for it, no demand for it, no need for it. The average consumer had no idea that, one day in the not very distant future, he would have to have one (the latest version, please, if you don’t mind, at $1,000 a copy) or his life would end (irony here!).

Keynesians simply have it backwards: it’s capitalists – entrepreneurs with an idea – who drive the economy. By offering products and services that are found to be needed and useful, and for which customers are willing to pay good money, capitalists are rewarded, often handsomely. (Jobs’ net worth at his death: $10 billion). But the biggest winner, as always, is the consumer: his life is made easier, simpler, more pleasant, more enjoyable, more productive, thanks to Mr. Jobs and his idea.

That’s why the latest report on unemployment claims issued by the Department of Labor on Thursday isn’t surprising, except to those still in denial. The DOL reported that unemployment claims last week were at 233,000, almost an all-time low, and cementing into place a streak of jobless claims of less than 300,000 that stretches back to 1967!

And it’s just getting started. The economy, now being fed superfuel, is likely to continue to set records. The unemployment rate, currently at 4.1 percent (a 17-year low), is predicted to drop to 3.5 percent, perhaps even lower. Employers have been adding workers every month for – ready? – 90 straight months.

The clearest explanation of what’s happening comes from an unlikely place – one of the big four accounting firms, PricewaterhouseCoopers, and its Trendsetter Barometer. For 21 years, PWC has been quizzing the owners and managers of privately owned and managed companies on their outlooks on the economy, and for 21 years that barometer has served as a reliable leading economic indicator for the next twelve months of the U.S. economy.

Here’s what that barometer says: 83 percent of the 300 owners and managers polled are optimistic about prospects for U.S. economic growth over the next 12 months – an astonishingly high percentage. The current reading reflects the polling of 300 chief executive officers and chief financial officers across the spectrum of privately-held companies that average $372 million in annual revenues. PWC then is taking the temperature of entrepreneurs who manage more than $100 billion of private capital. Right now that temperature is rising, according to PWC partner Ken Esch:

The optimism levels that we’re seeing are very high … [they are at levels] we haven’t seen since the early 2000s. Our survey participants are very optimistic about the U.S. economy, and it is translating into revenue growth for them.

Two out of every three of those polled are hiring, or planning on hiring, new people, which Esch says is “a very high reading historically.” The reason? Says Esch: “[Those CEOs and CFOs] are confident that the demand [for their products and services] is there, and that their concern [now] is centered around their ability to attract and retain qualified workers.”

A deeper look into PWC’s survey reveals just what those entrepreneurs are planning to do with their tax cut “windfalls” (improperly named, as the money was theirs to begin with; part of it is being returned to them thanks to the new tax reform law). They are not planning on using it to increase their own salaries or bonuses, or even to pay down company debt. Instead, 56 percent of them are planning to raise the wages of their workers, while 41 percent of them planning on hiring new workers. More than a third of them are going to be increasing the capital investment in their businesses, while 29 percent of them are going to be investing those funds in increased research and the development of new products.

In other words, instead of “hunkering down” in the expectation of tough times ahead by paying down company indebtedness, they, almost to a man, are deciding to invest in the future. With that new investment will come new products, new services, and the need for more people to work for them.

Like those 123,000 people who now work for Apple (which didn’t even exist 42 years ago), those new workers will then enjoy higher standards of living as a result. It’s the “trickle up” effect: new capital investment leads to new products and services, which leads to greater consumer satisfaction which leads to a higher standard of living. It’s an endless circle that spirals upwards. Thursday’s report from the Labor Department is just one more reflection of that accelerating spiral of activity fueled by private capital investment.

What’s even more exciting is that this is the first poll taken by PWC since Trump’s tax reform law was passed, and far too soon to measure any sort of economic improvement. These are plans, outlooks and opinions only. Ask those 300 owners and managers six months from now about their results – where they have put this new superfuel to work in their own companies –ask them about revenues, job growth, customer growth, and new products and services. That barometer is serving today as an early signal about future economic growth that is more than likely to exceed Keynesians’ expectations simply because those worthies have, in their thinking, put the cart before the horse.

As a result Keynesian academics have no imagination. Compare their stuttering utterances about the economy, parsing phrases about massaging the “federal funds rate” in order to guide and direct the economy, to those of Robert Goddard. Goddard (b. 1882, d. 1945), the inventor of the world’s first liquid-fueled rocket and rightly called the “Usher of the Space Age,” said:

I feel we are going to enter an era comparable in its progress to that in which the airplane advanced… It’s just a matter of imagination how far we go with rockets and jet planes…I think it’s fair to say you haven’t seen anything yet.


Sources:

Apple Inc. in 2015 – Harvard Business School case study

MarketWatch.com: Jobless claims drop 9,000 to 233,000, cling near 45-year low

Morningstar.com: U.S. Weekly Jobless Claims Hold Below 300,000 for Longest Streak on Record – Update

Reuters: U.S. Weekly Jobless Claims Fall

AccountingToday.com: Private companies more optimistic after tax reform

PWC.com: Private US companies continue investment drive for 2018 growth

Background on Robert Goddard, the father of the Space Age

The post The Economy is Booming. Why Should Anyone be Surprised? appeared first on Light from the Right.


Source: http://lightfromtheright.com/2018/04/17/the-economy-booming-why-should-anyone-surprised/


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