Eco­nom­ic con­di­tions in the U.S. have shown resilien­cy over the past quar­ter despite con­tin­ued glob­al con­flicts and the Fed’s grad­ual eas­ing of its’ quan­ti­ta­tive eas­ing pro­gram. 

In fact, most of the key indi­ca­tors that we fol­low are con­tin­u­ing to post pos­i­tive results year-over-year.  Employ­ment is grad­u­al­ly and, more impor­tant­ly, con­sis­tent­ly improv­ing and man­u­fac­tur­ers con­tin­ue to gear up for antic­i­pat­ed future growth.  The con­struc­tion indus­try has improved from year ago lev­els but is giv­ing off mixed sig­nals of late, show­ing strength in new sales and con­fi­dence and weak­ness in hous­ing starts and per­mits.  While this near-term sit­u­a­tion bears watch­ing, we believe the con­struc­tion indus­try as a whole, has recov­ered to a more “nor­mal” busi­ness cycle. 

While glob­al issues, pri­mar­i­ly polit­i­cal in nature, cloud the pic­ture in Euro­pean and emerg­ing mar­ket economies, we antic­i­pate the U.S. econ­o­my to con­tin­ue to improve through the end of the year and into 2015.      

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.  

 

SunnyRetail Sales – Most­ly sun­ny.  With the weath­er no longer an issue, we see a pos­i­tive, if slight, trend in con­sumer spend­ing.  Both April and May’s read­ings were revised upward and we are see­ing that year-over-year, Retail Sales are up 3.8%.  Not only that, but Con­sumer Con­fi­dence is ris­ing as well.  June num­bers came in at 85.2 vs 82.2 in May and 78.3 in Feb­ru­ary.        

How­ev­er, as we men­tioned in last quar­ters update, Retail Sales are being impact­ed by lack­lus­ter employ­ment gains, min­i­mal wage growth and grow­ing food, ener­gy and health­care costs.  It is now clear to s con­sumer is reign­ing in their spend­ing to cov­er required liv­ing expens­es.  We con­tin­ue to antic­i­pate soft­ness in this met­ric until employ­ment and wage growth strength­en.  

 

SunnyWhole­sale Trade – Most­ly sun­ny.  Durable Goods were up 0.1% month-over-month and up 2.9% from a year ago.  Sales of Non­durable Goods were up 1.2% from Jan­u­ary and up 3.3% from a year ago.  On a year-over-year basis, this is a con­tin­u­a­tion of the trend we’ve seen for the past sev­er­al months.  Whole­sale Trade of Non­durable Goods is grow­ing at a steady rate and will like­ly con­tin­ue to in the near term.  How­ev­er, we expect growth to mod­er­ate in the sec­ond half of 2014

 

Sunny

Man­u­fac­tur­ing – Sun­ny.  US Indus­tri­al Pro­duc­tion con­tin­ues its pos­i­tive trend.  The sec­ond quar­ter once again saw pos­i­tive gains with all twelve Fed­er­al Reserve Dis­tricts indi­cat­ing man­u­fac­tur­ing activ­i­ty con­tin­ues to expand.  Five of the dis­tricts, includ­ing New York and Chica­go, report that growth is “robust”.     

Look­ing for­ward, we believe we will con­tin­ue to see a peri­od of accel­er­a­tion through the sec­ond half of 2014 before it mod­er­ates going into 2015.  Total Man­u­fac­tur­ing Pro­duc­tion did not slow­down as antic­i­pat­ed.  Instead, it rose at an annu­al rate of 6.7% and it appears to have stay­ing pow­er through the end of the year. 

 

SunnyInter­est Rates – Sun­ny.  In the sec­ond quar­ter, the 10-year Trea­sury yield decreased to around 2.5% and is hold­ing steady.  We believe yields will be range bound between approx­i­mate­ly 2.6% and 2.9%.  The Fed has con­tin­ued to taper the quan­ti­ta­tive eas­ing (QE) bond buy­ing pro­gram by $10B per month.  All in all, no news (or lit­tle news) has result­ed in inter­est rate sta­bil­i­ty over the near term.  We con­tin­ue to expect inter­est rates to rise slow­ly through the end of the year and that inter­est rates will stay his­tor­i­cal­ly low into 2015.      

 

Mostly SunnyCap­i­tal Goods New Orders – Chance of Clouds.  Non­de­fense Cap­i­tal Goods New expand­ed by 4.9% on a year-over-year basis in May.  How­ev­er, orders have slowed (down 0.5%), ship­ments have decreased (down 0.7%), unfilled orders have increased (up 0.9%) and inven­to­ries have increased (up 1.4%).  Over­all, we con­tin­ue to believe we will see slow but mod­er­ate growth through the end of 2014 and into 2015.

 

SunnyCon­struc­tion – Most­ly sun­ny.  What a dif­fer­ence a quar­ter makes.  Weath­er relat­ed issues are behind us and the num­bers have improved.  June exist­ing home sales increased sig­nif­i­cant­ly and are now at the high­est lev­els in 8 months.  Non­res­i­den­tial con­struc­tion spend­ing con­tin­ues to expand with a year-over-year increase of 6.4%. 

The Nation­al Asso­ci­a­tion of Home Builders (NAHB) Hous­ing Mar­ket Index (HMI), a gauge of home­builder sen­ti­ment recov­ered to 54 in the sec­ond quar­ter.  All three HMI com­po­nents post­ed gains in June with Cur­rent Sales and Con­di­tions increas­ing to 57, Future Sales Expec­ta­tions increas­ing to 64 and Buy­er Traf­fic increas­ing to 34.  While builder sen­ti­ment con­tin­ues to lean neg­a­tive, we are see­ing con­fi­dence improve through anti­do­tal mea­sures, such as the U.S. Con­struc­tion indus­try adding 6,000 new jobs in June.  

 

Mostly SunnyInter­na­tion­al Chance of clouds.  Con­cerns con­tin­ue to grow­ing about the mil­i­tary activ­i­ty between Rus­sia and the Ukraine.  It now appears the Euro­pean Union coun­tries are begin­ning to grap­ple with a slow­down in their economies.  Ger­many, France and Italy all show­ing slow­ing Indus­tri­al Pro­duc­tion. 

Con­verse­ly, eco­nom­ic data from Chi­na con­tin­ues to improve.  Chi­na Indus­tri­al Pro­duc­tion increased 9.2% year-over-year and has improved every month since Feb­ru­ary.  Addi­tion­al­ly, the most recent GDP fig­ures came in around 8.9% which is in line what was report­ed last quar­ter.   And the Unit­ed King­dom con­tin­ues to see eco­nom­ic expan­sion with a 2.5% year-over-year increase in Indus­tri­al Pro­duc­tion while unem­ploy­ment con­tin­ues to go down.   

All-in-all, the glob­al eco­nom­ic pic­ture will remain some­what cloudy due to geopo­lit­i­cal fog.  

 

To read oth­er eco­nom­ic updates please click here.