Once again, the eco­nom­ic met­rics we fol­low indi­cate growth is strong around the world.   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 con­tin­u­ing to see strong GDP growth.  Labor mar­kets are sol­id, glob­al trade is healthy and com­mod­i­ty prices are high­er.  All of which have led to the best glob­al growth in over sev­en years.

The U.S. econ­o­my is ben­e­fit­ing from a job mar­ket that con­tin­ues to improve.  Unem­ploy­ment is at a his­tor­i­cal low of 4.1% and wages are slow­ly ris­ing — and should con­tin­ue to do so at an accel­er­at­ing rate in 2018.  Hous­ing is often the great­est indi­ca­tor of how the con­sumer feels about the econ­o­my.  Con­struc­tion con­tin­ues to be strong as exist­ing home sales hit an annu­al rate of 5.81 mil­lion homes in Novem­ber 2017, the high­est lev­el since 2006.  This is still well below the lev­els seen in 2005 dur­ing the con­struc­tion boom times.  And, U.S. GDP has been revised upward to 3.2% for 2018.

Glob­al­ly, the good news also con­tin­ues.  The Inter­na­tion­al Mon­e­tary Fund report­ed that eco­nom­ic expan­sion has spread to 210 coun­tries.  In sev­er­al, growth rates exceed­ed those of the U.S.  Accord­ing to the World Eco­nom­ic Forum, 2017 GDP growth in Ger­many, Cana­da, France, and the Unit­ed King­dom out­paced that of the U.S.  The Euro­pean econ­o­my is expand­ing at the fast­ed pace in over a decade.  The Japan­ese econ­o­my con­tin­ues to see strong eco­nom­ic growth on the back of resilient glob­al trace and loose finan­cial poli­cies while emerg­ing mar­ket economies are improv­ing due to ris­ing com­mod­i­ty prices.

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 four times in 2017.  And the Fed’s coun­ter­parts in Europe are plan­ning on doing the same at some point in time.

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 2018 and into 2019.

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 Wage Growth increased 0.8% from last quar­ter to a new very strong 4.2%.  Hol­i­day sales surged 5.9% in 2017, the best sea­son since 2005.  E‑commerce sales have con­tin­ued to surge at the expense of brick and mor­tar stores.  With the Unem­ploy­ment Rate at a his­tor­i­cal­ly low 4.1%, wages are on the rise and infla­tion is final­ly start­ing to show some life.

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.  Over­all, Whole­sale Trade con­tin­ues to improve year-over-year, up 7.6% in 2017.  US Whole­sale Trade is grow­ing at an accel­er­at­ing rate for both Durable and non­durable Goods.

Key areas expe­ri­enc­ing strength con­tin­ues to be the Com­modi­ties sec­tor and the Con­struc­tion sec­tor.  The US Dol­lar made a fee­ble attempt at ris­ing dur­ing the quar­ter but, in the end, end­ed the quar­ter where it start­ed.  A weak US Dol­lar makes US goods less expen­sive over­seas and there­fore helps sup­port exports.

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


  Man­u­fac­tur­ing Sun­ny.  Man­u­fac­tur­ing con­tin­ues to chug along but now at an accel­er­at­ing pace.  Man­u­fac­tur­ing Pro­duc­tion is up 2.4% through Decem­ber with for­eign demand sup­port­ing domes­tic man­u­fac­tur­ing, which is up 6.2% year-over-year.  Con­struc­tion Machin­ery is up a sig­nif­i­cant 14.5% from a year ago.

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. How­ev­er, the infla­tion rate con­tin­ues to defy expec­ta­tions.  As of the end of 2017, the infla­tion was 2.1%, frac­tion­al­ly high­er than the Fed’s tar­get of 2%.

Even though bor­row­ing costs are ris­ing and 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 Part­ly Sun­ny.  Cap­i­tal Goods New Orders are in an accel­er­at­ing growth trend as firms begin to increase their invest­ment in cap­i­tal goods.  Non­de­fense orders rose to $765.7 bil­lion, up 3.6% from year ago levels.

As not­ed pre­vi­ous­ly, increas­ing indus­tri­al activ­i­ty is lift­ing demand for Cap­i­tal Goods.  Buoyed by ris­ing US Cor­po­rate Prof­its, busi­ness­es are bet­ter posi­tioned to place new orders in 2018.

We antic­i­pate this met­ric will con­tin­ue to improve through the end of 2018.


  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.  Build­ing Per­mits are up 2.7%, Hous­ing Starts are up 2.4%, and Hous­ing Com­ple­tions are up 8.7% from year ago levels.

Non-Res­i­den­tial Con­struc­tion is expand­ing as well.  Ware­house Build­ing Con­struc­tion is up 36.4% and Mul­ti Retail Con­struc­tion is up 16.2%

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.

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


   Inter­na­tion­al – 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, annu­al eco­nom­ic growth was stronger than that of the US in the 4th quar­ter and is the best in over a decade. UK Con­sumer Price Index was up 3% while Retail Sales was up 1.4% year-over-year.

In the Asia/Pacific region, China’s GDP was up 6.8% year-over-year show­ing remark­able sta­bil­i­ty and Japan had stronger than expect­ed growth the sec­ond half of 2017.

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 5% on stronger than expect­ed growth in Euro and Asia emerg­ing economics.

Over­all, the glob­al eco­nom­ic recov­ery is on track.  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.