Why independent business development is coming back
Although 2016 recorded one of the worst performances in independent business formation in decades, this year is beginning to reverse this trend as President Trump is starting to make good on his many positive pre-election promises.
As the first business-savvy president in the group of 44 previous national leaders, Trump is well aware of the fact that the bulk of manufacturing and major service jobs had shrunk dramatically since the late 1990s. This negative trend was magnified by the thousands of mechanical and technological crafts personnel, whose previous technical training schools had been largely shuttered in the latter part of the 1900s.
This growing negligence opened the door to a growing segment of America’s manufacturing sector being relocated in both emerging and proven industrial overseas leadership economies. These provided U.S.-based large conglomerates with low-cost capabilities to engender higher profits.
This trend was visibly accelerated during the two terms of the Obama Administration, which prided itself in providing America’s large consumer sector with a wide range of foreign-made goods with an American brand name. What had not been generally known was that the products produced by divisions and/or subsidiaries outside the U.S. could be brought “home” with little, if any, tariffs imposed.
While the policies necessary to even out this overseas manufacturing advantage by American companies will be evolving in the months to come, such finality will likely take many months to implement so as not to create havoc in the methods of distribution.
Since independent businesses had been the major victims in the surging imports of American-branded goods from abroad, the forthcoming Trump policies to expand industrial production and employment will likely make themselves felt affirmatively as this first term of the Trump Administration unfolds — but not before at least two years have passed, prior to mid-term elections.
At that time, a new, more realistic tax system and a feasible, ongoing return of American offshore monetary liquidity will also have been accomplished.
Will U.S. housing continue to be scarce in 2017?
Much to the surprise of expert forecasters, the demand for housing, including apartments and co-ops in the big cities, as well as additional rentals and ownership in the suburbs and rural areas, are continuing.
With the housing demand starting its surge shortly after the end of the Great Recession in 2011, available supply was caught short, with the great variety of craftsmen necessary to perform the basic building functions unavailable.
Much of this was due to the fact that the Great Recession further complicated available work shortages. Such work crafts as electricians, constructors, plasterers and latherers, previously graduated from now non-existent technical high schools, which were no longer available. This dereliction was magnified by the lack of “unemployed” reserves available.
With housing prices especially stratospheric in America’s major cities, as well as almost everywhere else in the U.S., it was anticipated that the demand/supply balance of available employees would be reached late in 2015. This not only hasn’t happened, but has resulted in increasingly higher rentals and made capital costs of new and already standing homes more expensive.
What the pundits had underestimated was that an unexpected surge of immigrants, legal and illegal, was boosting America’s population past the 330 million mark. This number, not expected to be reached until 2020 at the earliest, will actually be surpassed this year, despite the static low reproduction rates of multi-generational American families.
Also impinging on available housing and higher prices are the re-entry into the marketplace by thousands of high school and college graduates that had previously been living with their parents during and shortly after the Great Recession. With both wages and job opportunities, and despite higher rentals and mortgage interest rate recoveries, these individuals helped this “shortage” trend actually pick up speed in the last quarter of 2016.
And with the central point of President Trump’s manifesto calling for expansion of domestic factories and vastly improved job opportunities within the borders of the U.S., the demand/supply balance will strongly continue to favor increases in demand and even more continued housing shortages. Even steadily higher interest rates will not be a problem, as wage increases will overcome any interest margin cutbacks. Demand will continue to be king throughout 2017.
Will infrastructure revival be 2017’s surprise?
Of all the incomparable list of laggards to be righted, the long overdue task of America’s wide-ranging infrastructural modernization tops the list.
With trillions of dollars wasted on unproductive renewables (solar panels, wind power, geodesic experimentation), as well as food stamps for the multi-millions unable to find jobs, the catching-up process commands the greatest attention since the Reagan Administration successfully played catchup during the 1980's.
What makes environmental restructuring especially urgent is that the U.S., in general, has slipped into a third-world infrastructure status when it comes to the facility of its highways, railroad tracks, and the overall infrastructure of bridges, dams, and pipelines.
While Congress and the most influential media pages focused on the presidential health care plans and the increasingly strangulating U.S. Environmental Protection Agency restrictions, the U.S. Treasury debt doubled from $10 trillion to $20 trillion in the eight years of the Obama Administration. The outgoing President also attempted to restrain future production of commodities, especially coal, oil, and natural gas available in large areas of federal lands. President Obama reiterated that the outgoing administration was ready to “downsize” America’s incomparable potential in favor of climatological purity adventures, along with maintaining the world’s highest corporate taxes.
The latter provided the multi-national conglomerates with a ready-made opportunity to leave America’s shores while positioning its headquarters in low-cost and tax-friendly havens, such as China, Southeast Asia in general, and neighboring Mexico. While this temporarily provided the American consumer (comprising 68% of the U.S. world-leading gross domestic product) with low-priced goods, this Obama Administration hypothesis reduced the manufacturing sector to a record reduction level. This cut factory worker numbers almost in half during President Obama’s eight years.
While President Trump is looking at an overload of priorities, such as infrastructure, rational taxation, and the return of foreign monetary profits to the homeland, it is fervently hoped that this voter-granted opportunity of a conservative House and Senate, working with the White House, will be prioritized advantageously.
‘Buy America’ off to a hot start
After a two-year period during which more small businesses had shrunk and closed in relation to new independent businesses formed, the year 2017 has gotten off to a great start.
The answer lies in incoming President Donald J. Trump instigating a positive reversal, even before being sworn is as No. 45 on Jan. 20. Trump’s magic wand consisted of a promise that a re-employed, productive and expanded American workforce would be his top priority during the first 100 days of placing “America First” back on track.
In fact, the hundreds of thousands of American-based jobs promised by the likes of Ford Motor Co., Carrier Corp., AliBaba, and a major Japanese bank have already exceeded the American-based job creations by predecessor Barack Obama. The latter presided over an America that had seen the shrinkage of several million manufacturing jobs as major conglomerates moved headquarters and production bases to China, Mexico, and anywhere else where lower costs and taxes strengthened their bottom lines.
Although rapid technological evolutions also played a part in this employment/facilities demise, the inability of the Obama Administration to facilitate the maintenance of employment growth in the wake of the four-year-long financial crisis increasingly endangered economic growth. The eight years of the Obama Administration averaged less than two percent average growth, even when inflated by U.S. government jobs and deflated by a downward turn in military spending.
What is also happily apparent as the new Administration solidifies a hefty U.S. economic comeback is the investment funds’ usage that has evolved from previous corporate stock buybacks and balance-sheet monetary enhancement. This is resulting in increased independent company buyouts, which are now being manifested.
If the first 100 days are the tipoff of what’s coming in the months and years ahead, the rapid re-acceleration of America’s once-mighty production base, and subsequent employment opportunities, are making a reappearance with a thunderous start.
Pent-up investment funds assure 2017 business boom
With the first quarter 2017 nearing a close and the “Trump 100 days promise” in the midst of increasing realization, pent-up monetary inventory of the recent past is already being unleashed on factory expansion, equipment upgrades, and advanced technology implementation.
Spurred by the optimism of President Trump's "Buy American" emphasis, growing business sector hopefulness and confidence is translating into renewed expenditures as corporate regulatory reductions and massive tax breaks appear in the offing.
Despite years of near-zero interest rates that made for cheap borrowing, many big and medium-sized corporations had held back from an overall U.S. business environment, considered increasingly antagonistic. This has led to spending hold backs, as well as the transfer of production facilities to offshore locations in the Far East, or to Mexico.
While automobile production, railroad cars, and record repurchase of corporate stock proved the spending exception, the "Trump declaration" is proving the major stimulus behind the current corporate spending expansion. At the current overall investment spending percentage, in comparison to 2016, 2017 is destined to exceed not only last year, but all those months of climbing out of the depth of the Great Recession.
The extent to which this investment comeback will achieve new records is based on the level of success that President Trump will achieve in his administration's business/professional tax restructuring, elimination of an estate tax that has discouraged independent business, and the penalty tariff on multi-national U.S. businesses. These have increasingly farmed out their production worldwide to bring back into the homeland at much lower costs.
As the multitude and extent of legislative initiatives proposed by the Trump Administration takes shape, the reaction on both conglomerates and "small" businesses will become increasingly more intense. Unquestionably, the measure of success achieved by the president and his congressional allies will be synonymous with the comeback of America's business and industry in the months and years rounding out the Trump Administration’s hold on power.
What is the Federal Reserve Board’s future under Trump?
With the many varied facets of President Trump’s “America First” objectives well under way, the president’s relationship with the historically independent Federal Reserve Board is likely to represent a future arena of confrontation as the year wears on.
The pseudo-inflationary aspects of Trump’s expanding economic programs are sure to generate a major spending speedup. The multi-year “dormancy” of federal funds rates will force the Federal Reserve Board to increase these rates, the rates upon which most American commercial loans, mortgages, consumer purchases and general borrowing are based.
Following the highly astute Federal Reserve Board Chairmanship of Ben Bernanke during and after the Great Recession, after the more than 30 years of Alan Greenspan leadership, the Obama-chosen chairmanship of Janet Yellen, subsequently appointed after Bernanke, will likely not be renewed when its lapses in February 2018.
Although a fair-minded, respected, and informative chair, Yellen actually presided over a relatively dormant Federal Board of Governors, which raised the fed funds rates only twice ― at the end of 2015 and 2016. Yellen chaired the FRB during a lengthy period of disinflation that saw negative interest rates spring up in a handful of the world’s leading gross domestic product achievers, minus the U.S. She will almost surely not be reappointed.
Currently the U.S., and subsequently the world economy, is verging on an economic upswing in commodity prices, wages, and the multitude of development and services required by all global activities. This will usher in a surge of cost and price increases requiring higher interest rates to catch up with the incomparable innovations that “Trump’s USA” will experience.
Since the Federal Reserve Board will technically remain independent, Trump will make sure that the succeeding chairman will be a choice of close proximity to the president and his cabinet. And since the second half of 2017 will most assuredly face the dynamics of a fast-growing U.S. economy not seen for many years, the critically important fed funds rates emerging from the Federal Reserve Board will almost certainly be attuned to the interpretation of the president and his closest associates.