We keep hearing that small business owners are optimistic. The latest comes from the Discover Small Business Watch poll (via Rasmussen Reports).
“Small business owners are often the first to feel the effects of changes in the larger economy, so we believe they are an important barometer to track,” said Sastry Rachakonda, director of Discover’s small business credit card. “Based on our Watch numbers, economic confidence appears to be steady. However, cash flow is something to keep an eye on when it comes to small business indicators.”
Those who watch Wall Street are beginning to see ominous signs. It all started in a big public way when Alan Greenspan opened his pie whole and suggested that a recession was on the horizon. The stock market reacted quickly. Now we are beginning to hear speculation on how this impending recession would impact the 2008 election.
So which barometer is correct — Main Street’s confidence or Wall Street’s nervous investors?
Wild gyrations in the markets may have more to do with speculative trading than with underlying economic trends — however, I do trust the markets more than pundits or economists, as both groups do much better looking backward, than forward. The real champion in predicting the shorterm economic future is “small business” (i.e., the NFIB’s monthly trend survey). Such a survey aggregates decisions on individual hiring and pricing issues. These surveys go to a pool of small business owners who are not all reading the same articles in the Wall Street Journal to make their decisions, rather, they are saying, “yes, I think I’m going to hire a new employee next month.” If enough small businesses say, individually, they are optimistic about the next month, then that optimism is likely to “trickle up.”