The U.S. econ­o­my remains a bright spot in the world despite sig­nif­i­cant head­winds that damp­ened activ­i­ty in the ear­ly months of 2016.  Man­u­fac­tur­ing pro­duc­tion has been con­sis­tent over the past four months, con­tin­u­ing to edge high­er in the first quar­ter, boost­ed by strong auto­mo­tive out­put.  Yet a health­i­er econ­o­my and dif­fer­ing mon­e­tary pol­i­cy opin­ion pieces also comes with a cost — a sig­nif­i­cant­ly strength­ened U.S. Dol­lar — which in turn has con­tin­ued to damp­en the demand for export orders.  Addi­tion­al­ly, sig­nif­i­cant­ly low­er oil prices have begun to neg­a­tive­ly impact the U.S. oil renais­sance.  Low oil prices help the bot­tom line of those indus­tries that are net pur­chasers but do lit­tle to result in addi­tion­al hir­ing of new work­ers.

Employ­ment and wage growth has spurred con­sumer spend­ing and sav­ing.  Job open­ings are at a 15 year high and month­ly job growth is run­ning at its high­est lev­el since 2006.  Man­u­fac­tur­ers who sup­port the con­sumer con­tin­ue to gear up for antic­i­pat­ed future growth.  Addi­tion­al­ly, the con­struc­tion indus­try con­tin­ues to improve from year ago lev­els.  Now that the con­struc­tion indus­try as a whole has recov­ered to a more “nor­mal” busi­ness cycle, we antic­i­pate con­sumers will take advan­tage of the his­tor­i­cal­ly low mort­gage rates.

Inter­na­tion­al economies con­tin­ue to pose a risk to the U.S.  Europe is grap­pling with a num­ber of issues.  How­ev­er, fis­cal pol­i­cy is becom­ing more sup­port­ive to growth, large­ly due to gov­ern­ment expen­di­tures asso­ci­at­ed with the inflow of asy­lum seek­ers in some mem­ber states.  Also, mea­sures tak­en by the Euro­pean Cen­tral Bank ensure financ­ing costs should remain low for a longer peri­od of time.  In worse shape are the Emerg­ing Mar­ket economies.  China’s growth is slow­ing down as they deal with issues aris­ing from the move towards a more sus­tain­able and con­sump­tion-dri­ven growth mod­el.

Over­all, we see the con­tin­u­a­tion of a mod­er­ate con­sumer led recov­ery amid height­ened glob­al risks.  Pos­i­tive trends in the U.S. should pro­vide the tail­wind to sup­port eco­nom­ic activ­i­ty.  How­ev­er, glob­al growth will be at its weak­est point in the past five years.

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. 

 Sunny Retail Sales – Sun­ny.  The con­sumer, who rep­re­sents almost 75% of the econ­o­my con­tin­ues to improve.  1st quar­ter Retail Sales show year-over-year improve­ment around 2% on a month-over-month basis.    Con­sumers con­tin­ue to spend with good rea­son; more peo­ple are get­ting jobs, job open­ings are at their high­est lev­el in 15 years and con­sumers are see­ing increas­ing dis­pos­able income via high­er wages and low­er oil/gas expens­es.  We will see the con­sumer push­ing eco­nom­ic growth in 2016.


 Mostly Sunny Whole­sale TradeCloudy with a chance of rain.  Whole­sale Trade for the 12 months through Jan­u­ary was down 3.8% com­pared to the year before.  Inter­nal trends indi­cate that decline will per­sist through the first half of 2016, before growth takes hold in the sec­ond half of the year.


 Mostly Sunny Man­u­fac­tur­ing – Most­ly Sun­ny.  Total Man­u­fac­tur­ing grew 1.8% over the 12 months through Feb­ru­ary com­pared to the year before.  Again, those seg­ments that sup­port the con­sumer are improv­ing.  On the oth­er end, those seg­ments that sup­port the Oil and Gas and the Min­ing and Min­er­al Resource seg­ments will con­tin­ue to see con­trac­tion.  All-in-all, man­u­fac­tur­ing will flat-line into the end of the year.


 Mostly Sunny Inter­est Rates – Cloudy with a chance of rain.  Glob­al uncer­tain­ty has mut­ed any rise in the US Gov­ern­ment Long-Term Trea­sury yields.  They start­ed the year at their high­est lev­el after the Fed raised the rate for the first time in over 5 years.  They have since dropped and now hov­er around 2.4%.  We expect inter­est rates to remain low until glob­al mar­kets sta­bi­lize.


 Mostly Sunny Cap­i­tal Goods New Orders – Rain.  Cap­i­tal Goods New Orders have decreased year-over-year for the past four months through Feb­ru­ary.  Low com­mod­i­ty prices and the strong US Dol­lar are weigh­ing on this met­ric.  We do not expect improve­ment in this met­ric until we see com­mod­i­ty prices sta­bi­lize and the US Dol­lar weak­en against oth­er glob­al cur­ren­cies.


 Sunny Con­struc­tion – Sun­ny.  In 2015, non­res­i­den­tial con­struc­tion exceed­ed expec­ta­tions, even after an unusu­al­ly severe win­ter in many parts of the coun­try.  We antic­i­pate more of the same for 2016.  Through Feb­ru­ary, Sales of new Sin­gle-Fam­i­ly homes were up 2% nation­wide with ground­break­ing for New Home Con­struc­tion increas­ing 5.2% in Feb­ru­ary alone.  Mort­gage rates will con­tin­ue to be favor­able for the con­sumer and New House­hold For­ma­tions (kids mov­ing out of Mom and Dad’s base­ment) will increase as wages improve.


 Mostly Sunny  Inter­na­tion­al – Cloudy with a chance of rain.  Growth is con­tin­u­ing at a mod­er­ate pace in Europe sup­port­ed by a num­ber of pos­i­tive fac­tors such as oil prices, the euro’s exchange rates and low financ­ing costs which have stim­u­lat­ed exports and con­sumer spend­ing.  How­ev­er, if con­tin­ues to face head­winds.  Specif­i­cal­ly, the slow­down in emerg­ing economies and the influx of refugees from the Mid­dle East.  We antic­i­pate Europe will be able to over­come these risks and not go into reces­sion.

Chi­na con­tin­ues to see a slow­down in its econ­o­my.  Devel­op­ments have so far been con­sis­tent with a “rebal­anc­ing’ sce­nario where pol­i­cy stim­u­lus, com­bined with pri­vate con­sump­tion and ser­vices, counter bal­ance reces­sion­ary devel­op­ments.  Volatil­i­ty will con­tin­ue how­ev­er as its finan­cial-mar­kets evolve.

Oth­er emerg­ing mar­kets con­tin­ue to be exposed to finan­cial expo­sure such as the US’s inter­est rate cycle and the USD’s appre­ci­a­tion and the sharp drop in a wide range of com­mod­i­ty prices.  Growth prospects for Rus­sia, Brazil and coun­tries in the Mid­dle East, Africa and Asia will con­tin­ue to be sub­dued through 2016.


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