How Seemingly Minor Decisions Influence the Broader Economy

It is more or less inevitable that, at some point or another, every politician will make a public declaration that “small businesses are the backbone of the American economy.” And, although politicians are often perceived as having a somewhat complicated relationship with the truth, business owners indeed play a crucial role in shaping the economy at large.

Of course, market-based economies do not function according to the whim of any central authority, as even the economic levers available to the government do not provide the measure of control necessary to truly drive the economy one way or the other. This is by design, as a market-based economy is far better than granting a single person or entity complete control over a nation’s economy.

Since market-based economies are decentralized to such a degree that it operates on an almost autonomous level, it’s quite natural to conclude that the choices made by individual business owners ultimately have little to no effect on the economy at large. Whether this conclusion is accurate, however, is a matter of perspective, and a broader economic perspective demonstrates how, in aggregate, the individual actions taken by business owners have the potential to influence the economy in a significant way.

It is especially critical to note that there is little that can be achieved through policymaking decisions aimed at boosting economic growth during a time in which gross domestic product growth, workforce growth, and productivity growth are often described as slow, stagnant, or dormant. The situation is not exactly dire, but certain parts of the country are facing difficulties as a result of the relatively slow pace of economic growth.

With no magic wand that can be used to spur instantaneous economic growth, the individual business owners that represent the “backbone of the American economy” must recognize that the business decisions they make and the actions they take are not restricted by a vacuum; each decision and each action exerts some level of influence over others and therefore holds the potential to spark a series of chain reactions that ultimately benefit the broader economy.

Confidence only breeds more confidence, so the prevailing sense of optimism evident in the decisions made by individual business owners will inspire a greater level of optimism among other members of the business community. Rather than chalking up the mediocre performance of a business to a lack of broader economic growth — and thus indirectly contributing to the economy’s relatively uninspiring performance — individual business owners are better served by exerting the power they wield and taking steps to inspire greater levels of productivity growth, workforce growth, and gross domestic product growth.

US Surplus and Restored Production in Libya Extend Lengthy Stretch of Weekly Losses for Oil

With the US oil inventory still exceeding its five-year average by 100 million barrels, oil posted a loss for the fourth consecutive week, the longest period of consecutive weekly losses in two years. Even as OPEC members agreed to cut supply, the exemption of Libya and the continued surplus in the United States serve as the principal reasons for the extended period of weekly losses for oil prices.

Fueling the growing concern is the fact that the US surplus has shown no sign of waning, meaning that non-OPEC output alone will meet demand growth for 2018. It is for this reason that the string of weekly losses continued and oil fell to its lowest close since the beginning of the year. With inventory levels so high, it is a simple fact of the matter that this trend remains likely to continue until the fundamentals change in a way that alters the current trading range.

In New York, futures did enjoy a 0.6 percent increase but are still down 2.4 percent on the week. Analysts, including Michael Dei-Michei, the head of research with JBC Energy GmbH, do not see any sort of “bullish twist” in the most recent data made available by the US. Simply put, crude production is up and demand is down even with the onset of the summer driving season in the United States. As a result — which was dutifully noted by Dei-Michei — “U.S. oil stocks have not drawn for two weeks.”

Compounding the issue is the fact that the political upheaval and violent attacks that have plagued Libya and Nigeria are no longer wreaking havoc on oil production in those countries. Due to these countries’ newfound stability, oil production has substantially increased in just a short period of time: In Libya alone, oil production is expected to reach 900,000 barrels in a matter of days, according to Mustafa Sanalla, the chairman of National Oil Co.

Global supply growth will continue to be influenced by North America, as the fact that Canada’s oil sands expect a rapid increase in production over the next 36 months will make Canada the second-largest contributor to worldwide supply growth, trailing only the United States. Given these factors, it doesn’t appear likely that stockpiles will drop anytime soon, and certainly not within the next six months. According to a report from Bank of America Merrill Lynch, the expectation is that oil will be trading at $47 a barrel before the close of the second quarter.

Even Stronger US Home Sales Numbers Projected for 2017

After correctly predicting that 2016 would bring the greatest number of sales among previously owned homes in a decade, we again feel confident in making a bold projection for the 2017 sales year. Based on the rate of job creation and the ongoing increase in stock values, our current projections indicate an especially strong market for existing homes in the United States. With the current economic climate in mind, we believe the existing homes market is so strong that it is reasonable to expect home sales numbers outpacing the previous year by nearly three percent. According to our most recent calculations, a three percent increase translates to almost 6 million existing homes sales for the 2017 year.

There is already ample evidence supporting this projection. In the month of February, for example, the number of contracts for existing US homes outperformed every previous month going all the way back to the summer of 2010. It is worth noting that this increase might be at least partially attributed to homebuyers recognizing the possibility of an increase in the cost of borrowing combined with continued stability in terms of economic growth.

In spite of a relatively limited supply of existing homes — which is indeed having an impact on overall affordability in certain markets — it is our expectation that the existing homes sales market in the US will experience decade-best performance numbers. The same data analyses we use to identify off-market homes in which cap rates and cash flow rate higher than the national average also revealed that while the Northeast, South, and West experienced about a three to four percent increase in February contract signings, the Midwest enjoyed an increase of almost 12 percent.

Of course, the housing market has long been affected by seasonality, so it may be the case that the warmer-than-average weather we’ve experienced in early 2017 is at least part of the reason buyers have entered the market so aggressively despite it still technically being winter. With the overall supply of existing homes on the market also on the rise due to the early arrival of spring all over the nation, it’s only logical to conclude that, given the current economic conditions, a sharp increase in contract signings would naturally follow.

Due to the continued strength of the US economy — along with an increasingly strong labor market engendering a greater sense of job security nationwide — it is entirely rational to project existing home sales approaching 6 million for 2017, a figure that would improve upon last year’s best-in-a-decade performance. Given the accuracy of our previous projections and our longstanding success working with off-market properties, perhaps it should come as no surprise that so many other economists have drawn similar conclusions and are thus in complete agreement with our economic analysis.