The U.S. econ­o­my, though soft in the sec­ond half of 2015, remains a bright spot in the world.  This is despite sig­nif­i­cant head­winds cre­at­ed by the prob­lems fac­ing the major­i­ty the globe’s economies.  The world’s largest econ­o­my is being bol­stered by gains in Con­sumer Spend­ing and Con­struc­tion.  Strong employ­ment growth, cheap­er gaso­line, and high­er home prices will prob­a­bly sus­tain con­sumer con­fi­dence and spend­ing.  Giv­en that Con­sumer Spend­ing accounts for almost 71% of U.S. Gross Domes­tic Prod­uct, it is rea­son­able to believe the U.S. econ­o­my will over­come any fall­out from the rout in com­modi­ties, fran­tic swings in glob­al finan­cial mar­kets and glob­al eco­nom­ic weakness.

Inter­na­tion­al­ly, “Quan­ti­ta­tive Eas­ing” con­tin­ues to be the catch phrase.  The Euro­pean Cen­tral bank now plans on “doing what­ev­er it takes” to stim­u­late growth.  This is the same sto­ry from a year ago when the ECB intro­duced the Euro­pean ver­sion of QE.  Again, while we antic­i­pate this being pos­i­tive over the short term, we ques­tion what the long term con­se­quences will be.  Its bench­mark inter­est rate sits at 0.05% and the rate on deposits it holds is a neg­a­tive 0.3%, con­sid­ered a penal­ty rate intend­ed to encour­age banks to lend rather than hoard cash.  Addi­tion­al­ly, Chi­na is strug­gling with declin­ing growth.  GDP is now 6.8% and the trend has been neg­a­tive for sev­er­al years now.  The gov­ern­ment con­tin­ues to dis­cuss addi­tion­al QE plans to reverse the trend.

All in all, the future of the glob­al econ­o­my con­tin­ues to be cloudy.   In the near term, we antic­i­pate the U.S. econ­o­my to push through the cur­rent slow­down and improve through the first half of 2015 and act as the glob­al eco­nom­ic shock absorber.  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.


Retail Sales – Most­ly Sun­ny.  Slow but steady growth was the trend through­out 2015.  Total retail Sunnysales are up an annu­al­ized 4.8%.  Con­sumers con­tin­ue to spend with good rea­son; more peo­ple are get­ting jobs, job open­ings are at their high­est lev­el in 16 years and con­sumers are see­ing increas­ing dis­pos­able income via high­er wages and low­er oil/gas expens­es.  Where busi­ness­es pushed the econ­o­my in 2014, we see the con­sumer push­ing eco­nom­ic growth in 2016.


Whole­sale TradeCloudy with a chance of rain.  Busi­ness­es con­tin­ue to pull back.  The U.S. Cen­sus Bureau announced that Novem­ber 2015 sales of Mer­chant Whole­salers down 4.6% year-over-year, sales of Durable Goods were down 1.8% and sales of Non-durable Goods were down 7.2% year-over-year.  Mer­chant Whole­sale Inven­to­ries fell 0.3% to one of their low­est points since 2009.  One pos­i­tivMostly Sunnye, Whole­sale Trade of Machin­ery rose 2.3%.  Over­all, the report con­firmed the weak­ness in Whole­sale Trade through­out 2015.

Coun­ter­ing this is a fore­cast issued by the Busi­ness Sur­vey Com­mit­tee of the ISM which expects eco­nom­ic growth to improve in 2016.  Cap­i­tal Expen­di­tures are expect­ed to increase by 7.5%, employ­ment is expect­ed to improve by 1.7% and Rev­enues are expect­ed to increase to across the board.


Man­u­fac­tur­ing – Cloudy.  Glob­al chal­lenges have tak­en a toll on man­u­fac­tur­ers in the US.  The US Dol­lar con­tin­ues to be strong which in turn is reduc­ing demand for exports.  Exports are down 6.4Mostly Sunny% year-to-date and trade vol­umes remain soft.  Min­ing, which makes up about 16% of US Indus­tri­al Pro­duc­tion, and Util­i­ties, which make up about 10%, are both soft as well.  Min­ing is down because of the slow­down in the sec­tor.  Util­i­ties are down because the weath­er has been warmer due to the El Nino effect which in turn has decreased ener­gy con­sump­tion.  Even with all of the chal­lenges, Man­u­fac­tur­ing dur­ing the 4th quar­ter is up 1.2% from 2014Q4.  Even tak­ing out the auto­mo­tive sec­tor, which has been on fire in 2015, Man­u­fac­tur­ing is still up 0.7% quarter-over-quarter.


Inter­est Rates – Cloudy with a chance of rain.  Even with a quar­ter of a per­cent increase in the funds rate, the Fed­er­al Reserve con­tin­ues to be accom­moda­tive.  Infla­tion is prac­ti­cal­ly non-exis­tent and, with com­mod­i­ty prices con­tin­u­ing to show weak­ness, will remain so through at least mid-2016.  Infla­tionMostly Sunny is being seen in two areas how­ev­er.  Med­ical Care, where costs antic­i­pat­ed too increase from 3.0% in 2015 to 3.4% in 2016 and Housing/Lodging, where infla­tion is expect­ed to increase from 3.2% to 3.5%.

We antic­i­pate the Fed will con­tin­ue raise rates only as eco­nom­ic con­di­tions and infla­tion improve … which will not be until after com­mod­i­ty prices have increased from their cur­rent, his­tor­i­cal lows.  We antic­i­pate inter­est rates being low for longer.


Cap­i­tal Goods New Orders – Cloudy with a chance of rain.   This met­ric is walk­ing in step with that of Whole­sale Trade.  Busi­ness-to-busi­ness activ­i­ty is down 9.4% year-over-year.  The pri­ma­ry dri­ver for this is the weak­ness seen in com­modi­ties.  The weak­ness in com­modi­ties how­ev­er affects the met­rics Mostly Sunnyasso­ci­at­ed specif­i­cal­ly with min­ing equip­ment; Min­ing Machin­ery New Orders (down over 34% YOY) had over-sized influ­ence on the over­all met­ric.  Tak­ing this com­po­nent out of the mix, Non-defense Cap­i­tal Goods New Orders was down only 2.4% YOY which is con­sid­ered milder than nor­mal.  Giv­en the pos­i­tive news out of Con­sumer Spend­ing, we antic­i­pate this improv­ing in 2016.


Con­struc­tion – Most­ly sun­ny.  Hous­ing starts and per­mits were mixed in the lat­est report.  Hous­ing Starts fell 2.5% and per­mits fell 3.9%.  Year-over-year though, rates looks healthy espe­cial­ly for per­mits which rose 14.4% while starts are up 6.4%.  In addi­tion, Homes Under Con­struc­tion are up 18.5% on a year-over-year rate.  This in turn has result­ed in a siz­able boost to con­struc­tion spend­ing and employment. Sunny

Non­res­i­den­tial Con­struc­tion Spend­ing is expect­ed to con­tin­ue to recov­er.  The Asso­ci­at­ed Builders and Con­trac­tors fore­cast Non­res­i­den­tial Con­struc­tion to increase 7.4% in 2016, along with improve­ments in employ­ment growth and back­log.  Inter­est­ing­ly, the great­est expect­ed con­struc­tion growth is expect­ed to be in the man­u­fac­tur­ing sec­tor (14.9% increase), a sec­tor which is show­ing con­sid­er­able weak­ness.  The Lodg­ing con­struc­tion is expect­ed to grow by 11.4%, clear­ly in antic­i­pa­tion of an increase in con­sumer spending.


Inter­na­tion­al – Cloudy with a chance of rain.  Over­all, major glob­al economies are strug­gling with weak­ness in their economies.  The good news out of the Euro­zone is that over­all employ­ment is at a 4 ½ year high and order back­logs showed the sharpest increase since May 2011.  Ger­man eco­nom­ic sen­ti­ment increased in the last quar­ter but is still con­sid­er­ably off April’s high and expec­ta­tions remain dampeMostly Sunnyned over­all.  The pri­ma­ry rea­son cit­ed are the con­tin­ued weak­ness in Chi­na and increas­ing con­cern about the out­look for emerg­ing markets.

Speak­ing of Chi­na, fourth quar­ter GDP was up 6.8% from a year ago com­ing in at 6.9% … its slow­est pace since 1990.  This in turn has led to cor­rec­tions in finan­cial mar­kets around the world as analyst’s see a Chi­na slow­down as poten­tial­ly affect­ing oth­er economies.  In gen­er­al, econ­o­mists wide­ly agree that China’s max­i­mum poten­tial growth is slow­ing due to demo­graph­ics (an aging pop­u­la­tion) and
urban­iza­tion (trend away from an agri­cul­tur­al econ­o­my).  Addi­tion­al­ly, oth­er Emerg­ing Mar­kets are see­ing weak­ness as well.  The end of 2015 saw the down­turn in man­u­fac­tur­ing con­tin­ue; with PMI indices for India, Brazil, Rus­sia, Indone­sia, and Malaysia all in con­trac­tion ter­ri­to­ry.  Clear­ly, many of these coun­tries are being impact­ed by the weak com­mod­i­ty prices.

The World Bank, how­ev­er has esti­mat­ed 2016 glob­al growth will climb to 2.9% in 2016 from 2.4% in 2015 based on their belief that advanced economies, the U.S. and to a less­er extent the Euro­zone, will improve through 2016.



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