Economists are often called to comment on business cycle peaks and troughs. Speculating on this matter is not an easy task, and I choose to speak more in generalities than specific predictions. A few things are certain though, the number of indicators at “all time highs” appears to be indicative of a peak, or at least a slowdown in growth. For example, the NFIB reported that their “Small Business Optimism Index soared to 108.8 in August, a new record in the survey’s 45-year history, topping the July 1983 highwater mark of 108.” The Conference Board’s Lynn Franco noted, “Consumer confidence increased to its highest level since October 2000 (Index, 135.8), following a modest improvement in July.” Furthermore the Conference Board’s Leading Economic Indicator’s (LEI) Index is now at 111.2, above the previous peak of 102.4 seen in March 2006. Also, nominal measures of equity markets are also at or near their all-time highs. With unemployment measures at 3.9%–the lowest since December 2000–and job growth of 200k, these are all good signs about where our economy sits right now. It should be noted that all this data is coming on the heels of a relatively large stimulus that came in the form of personal income tax cuts for individuals, tax rate cuts and repatriation benefits for corporations, and spending increases that occured with the end of the sequestor. Some of this stimulus is bound to be short-lived, and hopes for a sustained boost to the economy appear faint.
With all that in mind, all time highs in confidence and mood are somewhat perilous. Perhaps we can persist here, but the threat of a trade war has certainly raised the spectre of “uncertainty” within businesses. We could persist at or near these high levels for some time, but mood can shift in a hurry. Equity markets do not signal much to me these days, since nothing seems to impact their levels in either a positive or negative way. There has been lots of chatter about how equity markets are peaking, but it is difficult to tell who (if anyone) is trying to get on the other side of that trade. It will be interesting to see how this all plays out. I give some credence to Ray Dalio’s recent statement that we appear to be in the 7th inning of the cycle.