Eco­nom­ic growth is strong around the world.  The num­ber of coun­tries with economies that are in a reces­sion are at near all-time lows.  The ultra-loose mon­e­tary poli­cies that were imple­ment­ed due to the finan­cial crises a decade ago, have led to an expand­ing glob­al econ­o­my result­ing in many coun­tries see­ing strong GDP growth.  Many regions are see­ing low unem­ploy­ment and high­er real wages which is dri­ving con­sump­tion.  While glob­al infla­tion is rel­a­tive­ly low, it is inevitable it will even­tu­al­ly rise.

In antic­i­pa­tion of ris­ing infla­tion, cen­tral banks around the world are begin­ning to tight­en mon­e­tary pol­i­cy.  The U.S. Fed­er­al Reserve has already raised inter­est rates three times this year (and may again in Decem­ber).  And, the Fed’s coun­ter­parts in Europe are plan­ning on doing the same.

Domes­ti­cal­ly, con­sumer con­fi­dence is soar­ing due to a num­ber of fac­tors includ­ing low unem­ploy­ment, ris­ing wages and improve­ments in the finan­cial mar­kets.  The U.S. is also see­ing con­tin­ued strength in the man­u­fac­tur­ing and con­struc­tion sec­tors.  Addi­tion­al­ly, growth in New Orders and Pro­duc­tion and Durable Goods num­bers con­tin­ue to improve which bodes well for the future. We antic­i­pate this growth cycle to per­sist into 2017Q4 and 2018 as the momen­tum con­tin­ues.

Glob­al­ly, the good news also con­tin­ues.  Eco­nom­ic reports on the Euro­pean econ­o­my are increas­ing­ly pos­i­tive even with the polit­i­cal back­drop of the Brex­it and Spain see­ing the poten­tial for Cat­alo­nia to secede.  Euro unem­ploy­ment, while still high, is down to a nine year low of 9.1%.  In Asia, Chi­na pro­ject­ed 6.9% GDP growth for the year.  All-in-all, the major glob­al economies are improv­ing in tan­dem.

We now believe the best is ahead of us, both in the U.S. and glob­al­ly.  US and glob­al eco­nom­ic growth is begin­ning to accel­er­ate and should con­tin­ue to do so through­out 2017 and into 2018.

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.  The sto­ry of this quar­ter is that con­sumer wages have final­ly start­ed to find their groove.  Over­all US Wage Growth is now a robust 3.4%.  Giv­en that the Unem­ploy­ment Rate, cur­rent­ly a low 4.2%, has been run­ning low for quite some time, it was inevitable wages would even­tu­al­ly rise.

Addi­tion­al­ly, the hous­ing mar­ket con­tin­ues to strength­en, peo­ple who have dropped out of the work­force are now look­ing for jobs,  bor­row­ing costs are low (for now) and ener­gy prices are low.  Retail Sales through Sep­tem­ber are up 3.8% year-over-year.

All-in-all, the con­sumer will steadi­ly pro­pel eco­nom­ic growth through the end of 2017 and into 2018.

  Whole­sale TradeSun­ny.  Over­all, Whole­sale Trade con­tin­ues to improve. US Total Whole­sale Trade improved from 3.9% through the 12 months end­ing in May to 5.7% in the twelve months through Sep­tem­ber.

As of the end of the quar­ter, the US Dol­lar has weak­ened against major glob­al cur­ren­cies which in turn makes US goods less expen­sive over­seas.   Key areas expe­ri­enc­ing strength con­tin­ues to be the Com­modi­ties sec­tor and the Con­struc­tion sec­tor.

We expect accel­er­at­ing growth in both durable and non­durable seg­ments through this year and into 2018.

  Man­u­fac­tur­ing Sun­ny.  Man­u­fac­tur­ing con­tin­ues to chug along through mid-2017.  Aver­age Man­u­fac­tur­ing Pro­duc­tion dur­ing the 12 months end­ing in April rose 0.7% year-over-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.

As we pre­dict­ed last quar­ter, Man­u­fac­tur­ing has turned the cor­ner and is now in growth mode.

  Inter­est RatesPart­ly Sun­ny.   The U.S. econ­o­my is fun­da­men­tal­ly sound. In our last eco­nom­ic update blog, we pre­dict­ed infla­tion would rise above 2% by the end of the year.  The cur­rent annu­al infla­tion rate is now 2.3% which is above the Fed­er­al Reserve’s tar­get rate of 2%.  The Fed raised rates in June and we believe they will raise rates one more time before the year is out.

Even though con­sumer wage growth is begin­ning to accel­er­ate, we con­tin­ue to believe inter­est rates will remain low for longer.  The Fed will raise rates but they will be increase by only 0.25% each time.

A key unknown is how the Fed will begin unwind­ing the $4.5 tril­lion of bonds it holds on its’ bal­ance sheet due its’ inter­ven­tion in the mar­kets dur­ing the Great Reces­sion.

  Cap­i­tal Goods New Orders Cloudy.  It’s the same sto­ry as last quar­ter —  Short term indi­ca­tors allude to improve­ment in the indus­tri­al sec­tor.  Ris­ing Machin­ery Man­u­fac­tur­ing Capac­i­ty Uti­liza­tion Rates indi­cate activ­i­ty lev­els are increas­ing.  Ris­ing US Cor­po­rate Prof­its sug­gest busi­ness­es will be bet­ter posi­tioned to place new orders into 2018.  And, a gen­er­al rise in the US Pur­chas­ing Man­ag­er Index sup­ports the argu­ment that we will see improve­ment in New Orders – at some point.

Once again, a mixed bag of pos­i­tive and neg­a­tive reports.  While US Exports are up 1% year-over-year, main­ly due to a weak US Dol­lar, we con­tin­ue to believe this met­ric even­tu­al­ly strength­en as the year pro­gress­es and into 2018.

  Con­struc­tionSun­ny.  It’s the same sto­ry as last quar­ter.  Pos­i­tive news con­tin­ues for the hous­ing sec­tor.  Total Res­i­den­tial Con­struc­tion is grow­ing at an accel­er­at­ing pace.  Build­ing Per­mits are up 2.4% while Hous­ing Starts are up 4.6% from year-ago lev­els.

How­ev­er, 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.

   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’ 2017 and 2018 glob­al growth pro­jec­tion to 3.6% (from 3.5%) and 3.7% (from 3.6%), respec­tive­ly.

In the Euro­zone, man­u­fac­tur­ing activ­i­ty con­tin­ues to be strong.  How­ev­er, busi­ness activ­i­ty in the Unit­ed King­dom slowed more than antic­i­pat­ed and unem­ploy­ment con­tin­ues to be his­tor­i­cal­ly high.

In the Asia/Pacific region, China’s man­u­fac­tur­ing PMI for July hit is 4‑month high, top­ping expec­ta­tions.  Over­all, China’s econ­o­my is pro­ject­ed to grown at 6.8% in 2017.  Japan’s econ­o­my out­per­formed dur­ing the first half of the year.

Emerg­ing Mar­kets con­tin­ued to see bet­ter than expect­ed growth in main­ly due to the recov­ery and sta­bi­liza­tion of com­mod­i­ty prices, many EM coun­tries saw eco­nom­ic improve­ment.

Over­all, the glob­al eco­nom­ic recov­ery is on track.  We antic­i­pate growth will accel­er­ate through the end of the year and into 2018.  Grant­ed, head­winds do per­sist and the prob­a­bly of a black swan event is con­sid­er­ably high­er for the glob­al econ­o­my.

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