Bloomberg There is an article discussing the prospects for the economy moving forward A pessimistic pundit cites this survey of small business sentiment:
At first glance, the recent drop looks alarming. But then I looked at the whole graph. What do you notice? There seems to be almost no correlation between small business sentiment and the state of the economy. The two really big recessions (1981-82 and 2008-09) are hardly noticeable. I can’t remember ever seeing a bad forecasting tool.
There have been four distinct peaks in positive sentiment: in the late 1980s, early 1991, late 2000, and late 2016. Why would small business owners suddenly become optimistic about the economy? After all, the economy got worse in 1981 and 1982, and 1991 was a very mediocre year. It got worse in 2001. It got better in 2017, but nothing out of the ordinary. So why those four waves of positive feelings? (Hint, what was going on politically at those 4 points in time?)
To be sure, there are some very good reasons to be concerned about the economy’s future prospects, including high inflation, an inverted yield curve and falling stock prices. I am definitely worried. But don’t be misled by scholars displaying graphs and telling you what it means. Don’t be like a child hypnotized by shiny objects dangling in front of their eyes. Don’t fall victim to conformation bias. Take a closer look at the entire graph—does it make sense?