On Tuesday the August NFIB Small Business Optimism report saw the index by the same name rise to the highest level in its 45-year history at 108.8, passing the prior September 1983 record of 108.0. The report confirmed the previous JOLTS report from the BLS with a whopping 89% of small business owners finding no or few qualified applicants for their open positions. A record high 25% of small businesses reported the Quality of Labor as their biggest problem. Things have certainly changed. A few years back Taxes and Red Tape were the biggest headaches, but today, combined, they are only slightly more challenging than the Labor situation. While this likely means companies will need to train workers to fill slots, something that can hit margins and productivity, it also means we are staring down a headwind for GDP.Wednesday the markets got a reprieve from the over-heating data when the Producer Price Index (PPI) fell -0.1% in August versus expectations for a +0.2% gain after being flat in July. This was the first drop for the index in 18 months, dropping the year-over-year rate of increase to +2.8% from 3.3% in July and expectations for 3.2%. Core PPI year-over-year declined to +2.3% versus expectations for +2.7%.Thursday the Consumer Price Index data was released which like the PPI, came in below expectations for 2.8% year-over-year at 2.7% with core CPI at 2.2% versus expectations for 2.4%. The slowdown may be transitory, but it reduced expectations around rate hikes which in turn weakened the dollar. Rent inflation, which is still near the higher end of the historical spectrum slowed, but new and used car inflation increased. Personal computer prices saw a record increase, a result of the tariffs on Chinese imports.Friday’s report on August retail sales saw the smallest gain in six months, rising just +0.1% versus expectations for +0.4% and July was revised upwards to +0.7% from +0.5%. If it were for an increase in gas prices, which led to a +1.7% increase in purchases at gas stations, retail sales would have declined in August. The big hit came from car sales, which fell -0.8%. Sales at department stores and outlets also declined. Our Digital Lifestyle investing theme was on display again, with internet retail sales a standout of the report, rising +0.7%.Friday we also learned that US import prices in August experienced their biggest decline since January 2016, falling -0.6%, versus expectations for a -0.2% drop, thanks to the strong dollar. July’s import prices were revised downward as well to -0.1% from unchanged.The results from recent ZEW surveys of economist reveal they aren’t particularly enthused about the outlook for the global economy with growth expectations for regions at or near the lows. That said, their view of current conditions is pretty sunny, so more concerns that we are peaking. That seems to be the growing view everywhere, and even JPMorgan is now saying we could see the next financial crisis emerge in 2020 . Not that I hang my hat as a Contrarian, but this is making me think I need to seriously revisit my analysis as there are entirely too many thinking this way, which usually means something else is likely to happen – as the saying goes the market likes to make fools of the greatest numbers of participants.The euro area’s industrial production growth contracted year-over-year in August versus expectations for an increase of 1.0% with Italy’s down -1.3% versus expectations for an increase of +1.6%. In the United Kingdom, forward looking economic activity indicators are deteriorating, much around the continued uncertainty and lack of progress around Brexit.The strength of the dollar continues to vex emerging markets with 28 different EM currencies making new 52-week lows in the past two weeks alone. The number of 52-week lows is around the highest since January of 2016, when there were 42 making new 52-week lows. In August of 2015, there were 70 making new 52-week lows, so there is still plenty of room to move, which means there is likely more pain to be had so we aren’t rushing in yet to find the fire sales. While equity valuations for EM have come down, most markets still remain pricey by historical averages.As we look into the future at the inevitable downturn – the business cycle cannot be wished nor voted away – I was pleased to see that consumer credit as a percent of disposable personal income has been declining, although it remains near the highest levels on record. 
Total consumer credit rose $16.6 billion in July versus expectations for just $13.9 billion, to a seasonally adjusted $3.91 trillion, a 5.1% annual growth rate. The major source of growth was in nonrevolving credit, which is mostly auto and student loans, (the report does not include mortgages) which rose 6.4% in July after rising 4.0% in June. Such high levels of debt make the household sector, which accounts for roughly 70% of GDP, more vulnerable in an economic downturn, which means GDP is likely to get hit harder thanks to a bigger contraction in consumer spending than would occur with less household debt.The bad news for housing continues with student debt at a record 30% of total consumer loans. Those student loans are a major headwind to first-time homebuyers. Without the first-time buyer, the trade-up buyer has no one to bid up the price of their first home.The debt problem isn’t just at the household level as UBS estimates that lower-quality corporate loans and high-yield bonds have risen to a record high $4.3 trillion from $2.4 trillion in 2010. High-yield corporate bonds (aka junk) has risen from $781 billion in 2010 to $1.3 trillion.But wait, there’s more. The federal deficit in the first 11 months of fiscal 2018 was 32% higher than in 2017 as revenues rose by 1% but spending increased by 7%. This was driven by a 30% decline in corporate income tax receipts and an increase of 4% in individual and payroll tax receipts. Overall the budget deficit increased to $898 billion putting the total debt load to $21.5 trillion. In Q1 total federal debt as a percent of GDP had hit 105%. For those of us who recall the furious debates over the balloon federal debt levels in the early 1980s when this ratio was less than 40%, the utter indifference these days is astounding