Our eco­nom­ic indi­ca­tors con­tin­ue to run pos­i­tive for the first quar­ter of 2018.  Con­sumer spend­ing, busi­ness invest­ments and res­i­den­tial fixed invest­ments rose at a 4.6% annu­al rate.  Gross Domes­tic Prod­uct (GDP), a broad mea­sure of the nation’s over­all eco­nom­ic activ­i­ty has shown con­sis­tent growth over the past three quar­ters; up 3.2% in 2017’s 3rd quar­ter, 2.9% in the 4th quar­ter and 2% in the 1st quar­ter of 2018.

While the eco­nom­ic news is pos­i­tive, there is now a con­cern the econ­o­my is poten­tial over­heat­ing.  The peri­od of easy mon­ey has come to an end.  The Fed is rais­ing inter­est rates, albeit slow­ly.  How­ev­er, there are grow­ing employ­ment pres­sures which have impelled econ­o­mists and mar­ket watch­ers to voice con­cern over the poten­tial for rapid infla­tion.   In addi­tion to this, glob­al trade rhetoric and the risk of polit­i­cal grid­lock, have marked the return of stock mar­ket volatility.

The Euro­zone econ­o­my fin­ished 2017 with a bang show­ing growth at the fastest pace since 2007.  Year-over-year, GDP in the region grew at a 2.6% pace with Ger­many and Italy hav­ing picked up the pace.  The Ger­man econ­o­my rose 0.8% on the quar­ter while France, the 2nd largest econ­o­my, and Italy both grew at 0.5% on the quar­ter and 2.2% annu­al­ized.  How­ev­er, the eco­nom­ic machine has throt­tled back to neu­tral.  The tar­iff debate and oth­er polit­i­cal con­cerns are pri­mar­i­ly to blame.  Whether or not this is a pass­ing con­di­tion remains to be seen.

Here is a sum­ma­ry of some impor­tant eco­nom­ic indi­ca­tors, show­ing his­tor­i­cal infor­ma­tion and areas of poten­tial risk that could threat­en the eco­nom­ic recov­ery in the U.S.A.

Retail Sales – Sun­ny.  The good news con­tin­ues, quar­ter over quar­ter.  Over­all US Unem­ploy­ment con­tin­ues to move low­er while Wage Growth con­tin­ues to increase.  Both 2017Q4 and 2018Q1 GDP num­bers were fueled by con­sumer spend­ing.  Total Retail Sales are 4.5% above year ago levels.

All-in-all, with the con­sumer rep­re­sent­ing 75% of GDP, we believe they will steadi­ly pro­pel eco­nom­ic growth through 2018 and into 2019.

Whole­sale TradeSun­ny.  US Whole­sale Trade is grow­ing at an accel­er­at­ing rate for both Durable and Non­durable Goods.  Increas­es in com­mod­i­ty prices are par­tial­ly respon­si­ble for the growth with Petro­le­um and Petro­le­um Prod­ucts up 23% Year-over-Year and Trade of Machin­ery, Equip­ment and Sup­plies up 7.9%.

We con­tin­ue to expect accel­er­at­ing growth in both durable and non­durable seg­ments through the end of 2018.

Man­u­fac­tur­ing Sun­ny.  U.S. Man­u­fac­tur­ing con­tin­ues to show growth, up 2.4% year-over-year.  For­eign demand is sup­port­ing domes­tic pro­duc­tion and we are see­ing stronger growth in new orders.  This is dri­ving a sol­id increase in out­stand­ing business.

Total Man­u­fac­tur­ing Pro­duc­tion rose 1.9% in March com­pared to the same time last year.  US Cor­po­rate Prof­its and Capac­i­ty Uti­liza­tion rates con­tin­ue to rise.  Key con­trib­u­tors include the increas­ing ener­gy pro­duc­tion with­in the US, a strong domes­tic hous­ing mar­ket, and glob­al eco­nom­ic growth.

Inter­est RatesPart­ly Sun­ny.   The U.S. econ­o­my is sound and mon­e­tary pol­i­cy is tight­en­ing.  Although price infla­tion has con­tin­ued to run below tar­get, infla­tion is ris­ing and is set to rise above the Fed’s tar­get of 2% over the course of 2018.  The Fed is antic­i­pat­ed to raise rates to between 3.25 and 3.5% by the end of 2019.

While mon­e­tary pol­i­cy is tight­en­ing, fis­cal pol­i­cy is loos­en­ing.  Tax reform and increas­es in spend­ing will see the gen­er­al gov­ern­ment deficit rise by around 2% points of GDP, push­ing up gov­ern­ment debt lev­els.  It remains to be seen how this may affect the econ­o­my in the next few years.

Cap­i­tal Goods New Orders Part­ly Sun­ny.  Cap­i­tal Goods New Orders are expect­ed to accel­er­ate but it appears com­pa­nies are assess­ing the poten­tial impact of a glob­al trade oro­tun­di­ty.  This has result­ed in a near-term soft­en­ing of this met­ric.  Non-Defense New Orders are up 2.2% year-over-year while Ship­ments for Durable Goods are up 10 out of the 11 months and Inven­to­ries are up 20 out of the last 21 months.

Assum­ing the tar­iff tiff abates, we antic­i­pate this met­ric will con­tin­ue to improve through the end of 2018 and 2019.

Con­struc­tionSun­ny.  It’s the same sto­ry as last quar­ter.  Pos­i­tive news con­tin­ues for the hous­ing sec­tor.  Ris­ing wages, high con­sumer con­fi­dence and his­tor­i­cal­ly low costs for bor­row­ing pro­vide sup­port for the hous­ing market.

Res­i­den­tial Con­struc­tion con­tin­ues to show growth.  Build­ing per­mits are up 7.5%, Hous­ing Starts are up 10.9% and Hous­ing Com­ple­tions are up 1.9% year-over-year.  Non-Res­i­den­tial Con­struc­tion is expand­ing, albeit at a slow­er, 1.3% rate year-over-year.

Head­winds do per­sist.  Tight inven­to­ries of homes are lead­ing to high­er hous­ing prices.  This, in turn, could deter some would-be buy­ers.  There are also crit­i­cal short­ages; ready-to-build lots are in short sup­ply, skilled labor is hard to find, and ris­ing mort­gage rates could neg­a­tive­ly impact this metric.

Even with these head­winds, we antic­i­pate con­struc­tion will con­tin­ue to be strong through 2018.

 Inter­na­tion­al – Part­ly Sun­ny.  The world econ­o­my con­tin­ues to pick up as the accom­moda­tive mon­e­tary pol­i­cy in Europe and Asian coun­tries con­tin­ue.  Once again, the World Eco­nom­ic Out­look (WEO) raised its’ 2018 glob­al growth pro­jec­tion to 3.9% (from 3.7%) based on increased growth momen­tum and the expect­ed impact of U.S. tax policy.

In the Euro­zone, the econ­o­my entered 2018 hav­ing record­ed its fast­ed expan­sion in a decade.  How­ev­er, tar­iff debate, unusu­al weath­er and strikes in the eurozone’s two largest mem­bers have result­ed in a slowdown.

In the Asia/Pacific region, India is expect­ed to become the 5th largest econ­o­my in 2018.  Strong man­u­fac­tur­ing and growth-friend­ly poli­cies has pro­vid­ed the impe­tus to pos­i­tive eco­nom­ic growth.  Growth in Chi­na is antic­i­pat­ed to slow down as pol­i­cy sup­port eas­es and fis­cal poli­cies turn less accommodative.

Emerg­ing Mar­kets con­tin­ued to see bet­ter than expect­ed growth main­ly due to the recov­ery and sta­bi­liza­tion of com­mod­i­ty prices.  Eco­nom­ic growth has been revised upward to over 4.5% on stronger than expect­ed growth in Euro and Asia emerg­ing economics.

Over­all, the glob­al eco­nom­ic recov­ery is on track.  Assum­ing the trade tar­iff talk is resolved, we antic­i­pate growth will accel­er­ate through the end of 2018.  Grant­ed, head­winds per­sist and the prob­a­bil­i­ty of a black swan event is con­sid­er­ably high­er for the glob­al economy.