Two MACRO data points that highlight one common theme – INFLATION - that only a few can see!


Today, we learned that the National Federation of Independent Business Optimism Index dropped to 86.8 in March from 88.0 in February, the lowest level since July 2009.  Small businesses are the engine of job growth in the US and they are growing more concerned about sales trends and profitability.  Seven of the index’s 10 components declined in March and two were unchanged from February.   Small businesses are typically the first ones to see the consumer come back, and by and large, they are not seeing a pickup in demand.  More importantly, how likely is it that they are going to hire workers in significant numbers any time soon? 


Second, small businesses are less confident about the economy and profitability because the consumer is pinched and inflation is on the rise.  Prices of goods imported into the U.S. rose 0.7% in March following a revised 0.2% drop in February.   The free money polices of the FED and other central banks are pushing the envelope of global growth and pushing up commodities prices, but businesses haven't been able to pass the higher costs onto a weakened consumer. 


Backing out the cost of higher petroleum prices, import prices fell 0.2% in March, allowing the FED to argue that interest rates need to stay near zero for an “extended period” to heal the economy.


The FED will also need to ignore more data on inflation tomorrow.  Due for release tomorrow is the March 2010 CPI data which should show inflation accelerating, thanks to higher oil and gasoline prices, as well as to the slowly spreading broad impact of higher energy costs. 


A gambling man would favor something on the plus-side of consensus expectations. 


Howard Penney

Managing Director





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