Eco­nom­ic con­di­tions con­tin­ue to show signs of progress. On the upside, inter­est rates con­tin­ue to remain low in the face of glob­al uncer­tain­ty allow­ing U.S. con­sumers and busi­ness­es to bor­row mon­ey more cheap­ly than has been his­tor­i­cal­ly pos­si­ble. As an added bonus, increased oil pro­duc­tion with­in the U.S. and glob­al­ly has result­ed in low­er ener­gy prices for con­sumers which has mod­est­ly boost­ed con­sump­tion. On the down­side, slow­ing growth in Chi­na, weak­ness across Europe and polit­i­cal insta­bil­i­ty in the Mid­dle East and oth­er emerg­ing mar­kets, has result­ed in a strong dol­lar and weak­er glob­al demand for U.S. prod­ucts. While this makes imports less expen­sive for U.S. con­sumers, mul­ti-nation­al com­pa­nies are export­ing few­er U.S. made goods and ser­vices as a result.

As was the case last quar­ter, most of the key U.S. indi­ca­tors that we fol­low are con­tin­u­ing to post pos­i­tive results year-over-year. Employ­ment is grad­u­al­ly and, more impor­tant­ly, con­sis­tent­ly improv­ing. Job open­ings are at a 13 year high and month­ly job growth is run­ning at its high­est lev­el since 2006. 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 and act as the glob­al eco­nom­ic engine. How­ev­er, if the Euro­zone, Chi­na and Emerg­ing Mar­ket economies con­tin­ue to dete­ri­o­rate, the U.S. eco­nom­ic recov­ery could be at risk.

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.

 

Mostly SunnyRetail Sales – Cloudy with a chance of rain. Year-over-year, Retail Sales are up 4.3% which is in the ho-hum cat­e­go­ry. How­ev­er, the employ­ment out­look is look­ing bet­ter. Since our last quar­ter­ly report, over­all job growth has been strong and looks to con­tin­ue to improve into the future. 

Unfor­tu­nate­ly, this has not trans­lat­ed into strong Retail Sales num­bers. Con­sumers are show­ing cau­tion ahead of the 4Q hol­i­day sea­son. And, since retail sales accounts for a third of over­all con­sumer spend­ing, there is a chance for con­tin­ued weak­ness in the 4th quar­ter and into 2015.

 

SunnyWhole­sale Trade – Most­ly sun­ny.  We con­tin­ue to see strength in the num­bers for Whole­sale Trade.  Year-over-year it is up 5.8%.  While we see some slow­ing quar­ter-over-quar­ter, both Durable Goods Orders and Non-Durable Goods Orders con­tin­ue to expand, only at a slow­er rate.  We expect con­tin­ued growth through the end of 2014 and into 2015.  

 

SunnyMan­u­fac­tur­ing – Sun­ny.  Man­u­fac­tur­ing has been mov­ing high­er since our last quar­ter­ly report.  It con­tin­ues to gain on record highs since sur­pass­ing February’s pre-reces­sion highs and has now risen for the 13th con­sec­u­tive month.  As might be expect­ed, with growth comes the need for employ­ees.  As of Sep­tem­ber, Man­u­fac­tur­ing employ­ment growth has expand­ed for the 12th con­sec­u­tive month.  We expect con­tin­ued year-over-year improve­ment through 2014 and into 2015.  

 

SunnyInter­est Rates – Sun­ny.  Inter­est rates remain low main­ly as a result of glob­al eco­nom­ic and polit­i­cal con­cerns.  The eco­nom­ic recov­ery we antic­i­pat­ed last quar­ter has giv­en way to fears of fal­ter­ing economies in Europe and Chi­na.  As a result, the world has flocked to the U.S. bond mar­ket as a safe haven for their assets.  This in turn, has made our bonds more expen­sive, low­er­ing inter­est rates.  Giv­en the cur­rent glob­al tur­moil, or bet­ter, the lack of any res­o­lu­tion to the sit­u­a­tion, we antic­i­pate inter­est rates will remain low in the near term.  Expect the Fed to begin rais­ing inter­est rates some­time in mid-2015.  

 

SunnyCap­i­tal Goods New Orders – Sun­ny.  After a slow cou­ple of months, the Busi­ness-to-Busi­ness activ­i­ty appears to be accel­er­at­ing.  New Orders increased to 5.0% above 2013 lev­els and it appears more accel­er­a­tion is ahead.  The lat­est quar­ter came in 8.0% above the cor­re­spond­ing three-month peri­od in 2013.  This is the most robust quar­ter­ly gain in over two years.  We expect sales to con­tin­ue to grow into 2015.  

 

SunnyCon­struc­tion – Most­ly sun­ny. Hous­ing has been some­what of an anom­aly over the past few months. Year-over-year com­par­isons how­ev­er paint a pos­i­tive pic­ture of the indus­try. For new homes, buy­er traf­fic has risen for five con­sec­u­tive months to high­est lev­el since 2005. Home Builder con­fi­dence con­tin­ues to trend pos­i­tive as well. Inven­to­ries of homes for sale, both exist­ing and new, are still low and new homes are on the mar­ket for only three and a half months ver­sus the four to five months for a “nor­mal” mar­ket.

Con­sid­er­ing how deeply the indus­try was affect­ed by the Great Reces­sion, full recov­ery is not expect­ed until some­time in 2016.

 

Mostly SunnyInter­na­tion­al – Rain. The glob­al recov­ery is at risk. The impact of the Russia/Ukraine con­flict has become appar­ent in the Euro­zone. Out­put has now declined in 3 of the last 4 months and is now below year-ago lev­els. Germany’s indus­tri­al out­put dropped again, this time by 4.3%, and eco­nom­ic sen­ti­ment has now fall­en for the 10th con­sec­u­tive month.

Adding to the con­cern over the glob­al recov­er is Chi­na. It recent­ly report­ed GDP at 7.3% which is the slow­est it has been in three years. Gov­ern­ment sources are con­sid­er­ing imple­ment­ing their own ver­sion of Quan­ti­ta­tive Eas­ing in order to spur eco­nom­ic activ­i­ty. Any addi­tion­al set­backs could impact the recov­ery being seen in the U.S.

 

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