It can’t get a whole lot bet­ter in the U.S. job mar­ket (or can it?).  The employ­ment sit­u­a­tion con­tin­ues blast through expec­ta­tions.  The num­ber of Amer­i­cans los­ing their jobs and apply­ing for unem­ploy­ment ben­e­fits each week remained near a 49-year low in mid-Octo­ber, sug­gest­ing no vis­i­ble dete­ri­o­ra­tion in the U.S. labor market.

Ini­tial job­less claims, on mea­sure of lay­offs, dropped by 5,000 to 210,000 in the sev­en days end­ed Oct. 13th.  While new job­less claims edged up by 2,000 to 211,750, they have been below 220,00 since ear­ly July, a remark­able stretch last dupli­cat­ed almost a half-cen­tu­ry ago.  The num­ber of peo­ple col­lect­ing unem­ploy­ment ben­e­fits, mean­while, fell by 13,000 to 1.64 mil­lion.  These “con­tin­u­ing” claims touched the low­est lev­el since Aug 1973.

Addi­tion­al­ly, Job Open­ings just hit a record high and the U.S. Unem­ploy­ment rate has fall­en to a 48-year low while hir­ing remains robust.  The demand for labor is so strong it’s push­ing up the cost of work­er com­pen­sa­tion and giv­ing an eco­nom­ic growth cycle that’s now more than nine years old the stay­ing pow­er to become the longest expan­sion ever.

Last quar­ter we not­ed the pos­si­bil­i­ty the econ­o­my would slow down because of the poten­tial impact of the trade war and we have been proven cor­rect.  Busi­ness­es are tak­ing a wait-and-see approach to cap­i­tal spend­ing.  There were oth­er fac­tors at work as well.  Specif­i­cal­ly, the res­i­den­tial hous­ing mar­ket has cooled off con­sid­er­ably.  Ris­ing inter­est rates and hous­ing val­ues have tak­en a bite out of con­sumers appetite to pur­chase new homes.

Hav­ing said that, the Fed recent­ly announced infla­tion and inter­est rates were close to being at their stat­ed tar­get of 2% which implies they are now going to take a more mea­sured approach to rais­ing rates fur­ther.  As mort­gage rates sta­bi­lize and a new norm estab­lish­es itself in the hous­ing mar­ket, we should see con­sumers come back into the mar­ket and con­struc­tion spend­ing will resume its upward trend.

Glob­al eco­nom­ic growth con­tin­ues are a slow but steady rate.  There are lin­ger­ing risks, how­ev­er.  The trade war between the U.S. and oth­er coun­tries con­tin­ues.  How that plays out remains to be seen.  Geopo­lit­i­cal con­cerns con­tin­ue in Europe.  The even­tu­al out­come of the Unit­ed Kingdom’s exit from the Euro­pean Union is an unknown.  Addi­tion­al­ly, Italy is amid a poten­tial finan­cial cri­sis with its high lev­el of debt, weak banks, errat­ic gov­ern­ment and siz­able econ­o­my.    

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.  Retail Sales con­tin­ue to show growth but at a slow­er rate than in pre­vi­ous quar­ters.  Retail Sales are up 5.9% from year ago lev­els.  10 of the 13 major retail cat­e­gories show month-over-month increas­es which bodes well as we move into the hol­i­day season.

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

Whole­sale Trade – Part­ly Sun­ny.  US Whole­sale Trade is grow­ing at an accel­er­at­ing rate for both Durable and Non­durable Goods aid­ed by the cor­po­rate tax cut.  Whole­sale Inven­to­ries rose 5.1% YOY in Sep­tem­ber.  His­tor­i­cal­ly, this met­ric has aver­aged just 0.39%.

Key risks include gov­ern­ment poli­cies (i.e. the trade war, glob­al trade agree­ments) dis­rupt­ing glob­al economies. While we con­tin­ue to expect growth in this met­ric into 2019, we expect to be much slow­er than pre­vi­ous­ly thought.

Man­u­fac­tur­ing Sun­ny.  Total man­u­fac­tur­ing pro­duc­tion dur­ing the 12 months through August is up 2.3% YOY.  Activ­i­ty has been above the year-ago lev­el through much of the man­u­fac­tur­ing sec­tor.  Con­tin­ued growth in new orders, albeit slow­ing, drove increas­es in busi­ness investment.

We expect con­tin­ued growth through 2018 assum­ing the trade war does not escalate.

Inter­est RatesSun­ny.   In Sep­tem­ber, the Fed raised inter­est rates by 25 basis points to the cur­rent lev­el, the high­est record­ed since April 2008.  The econ­o­my is strong and but not at lev­els that would indi­cate it is overheating.

While the Fed will con­tin­ue to raise short term rates, we antic­i­pate the rate of change will now slow to a more mod­er­ate pace.

Cap­i­tal Goods New Orders Sun­ny.  New orders dur­ing the 12 months through August were up 8.3% on a year-over-year basis.  Over­all new orders for durable goods, those items rang­ing from toast­ers to air­craft (items meant to last more than 3 years) surged 4.5% in August.  Busi­ness spend­ing on equip­ment has steadi­ly risen since the fourth quar­ter of 2016.

Lead­ing indi­ca­tors con­tin­ue to sug­gest a poten­tial slow down lat­er in the year, but that has yet to mate­ri­al­ize.  Assum­ing the tar­iff tiff abates, we antic­i­pate this met­ric will con­tin­ue to improve through the end of 2018 and into 2019.

Con­struc­tionPart­ly Sun­ny.  The hous­ing mar­ket is slow­ing down.  Per­mits for New Con­struc­tion fell 5.7% YOY and Exist­ing Home Sales are down 4.1%.  On the oth­er hand, Non-Res­i­den­tial Con­struc­tion is up 1.9% from year-ago lev­els with Ware­house Build­ing Con­struc­tion up 21.6% YOY.

The head­winds include ris­ing inter­est rates and mate­r­i­al prices, ris­ing home val­ues and con­tin­ued weak­ness in the sup­ply of new homes.  Tail­winds include a very strong econ­o­my, still favor­able mar­ket fun­da­men­tals for com­mer­cial real estate and greater fed­er­al and state fund­ing for pub­lic works.

Even with these head­winds, we antic­i­pate con­struc­tion will recov­er into 2019.

 Inter­na­tion­al – Part­ly Sun­ny.  The world econ­o­my, while strong, is show­ing signs it may have peaked.  The World Eco­nom­ic Out­look (WEO) main­tained its’ 2018 glob­al growth pro­jec­tion at 3.9%.

In the Euro­zone, growth pro­jec­tions have been revised down­ward due to neg­a­tive sur­pris­es to eco­nom­ic activ­i­ty.  Employ­ment growth, how­ev­er, has been run­ning at the high­est rates seen in the last 20 years, a pos­i­tive indi­ca­tor for poten­tial 2019 eco­nom­ic growth.

In the Asia/Pacific region, Chi­na report­ed 6.8% growth show­ing remark­able sta­bil­i­ty.  How­ev­er, any esca­la­tion in the trade war may reverse this very quick­ly.  In fact, the trade war appears to be harm­ing the Chi­nese econ­o­my more that the U.S. economy.

Emerg­ing Mar­kets con­tin­ued to see bet­ter than expect­ed growth main­ly due to sol­id domes­tic demand and strong labor markets.

Glob­al eco­nom­ic growth con­tin­ues at a steady rate despite lin­ger­ing trade pol­i­cy uncer­tain­ties, pock­ets of polit­i­cal insta­bil­i­ty and tighter finan­cial conditions.