All indi­ca­tors are now point­ing, more or less, in a pos­i­tive direc­tion for the U.S. econ­o­my.  The con­sumer con­tin­ues to be in the driver’s seat, enjoy­ing low ener­gy prices, low bor­row­ing costs (for now any­way), ris­ing wages and a strong hous­ing mar­ket.  As far as the econ­o­my is con­cerned, the elec­tions were a non-event.  Although there is con­tin­u­ing angst in the media about the new admin­is­tra­tion, there has been few, if any, changes in our eco­nom­ic fore­cast.  The main con­cern we have at this moment, from a polit­i­cal per­spec­tive, is the poten­tial impact of the can­cel­ing of NAFTA and TPP (Trans-Pacif­ic Part­ner­ship) on tar­iffs and the cost of doing busi­ness inter­na­tion­al­ly for U.S. com­pa­nies.

Inter­na­tion­al­ly, we are see­ing improve­ment across the board for the most part.  There are areas of weak­ness but these are in minor regions of the Euro­pean Union.  Both Ger­many and the U.K. are post­ing bet­ter than expect­ed eco­nom­ic num­bers and we expect that to con­tin­ue.

Emerg­ing Mar­kets con­tin­ue to mud­dle through their eco­nom­ic malaise.  Com­mod­i­ty prices have sta­bi­lized and recent GDP data from sev­er­al coun­tries show improve­ment.  While there are still many poten­tial issues, it appears the worst is over for Emerg­ing Mar­ket economies.

Last quar­ter we were cau­tious­ly opti­mistic about our pre­dic­tions regard­ing the elec­tions and were vin­di­cat­ed.  We con­tin­ue to believe the worst is behind us, both in the U.S. and in Europe.  Glob­al eco­nom­ic growth is begin­ning to accel­er­ate and should con­tin­ue to do so through­out 2017.

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 con­sumer con­tin­ues to be the engine of our econ­o­my and when times are good, the econ­o­my fol­lows inline.  And what’s not to like for the con­sumer; Wages are increas­ing, the hous­ing mar­ket con­tin­ues to strength­en, peo­ple are get­ting jobs, bor­row­ing costs are low (for now) and ener­gy prices are low.  All-in-all, the con­sumer will steadi­ly pro­pel eco­nom­ic growth well into 2017.

 

  Whole­sale TradePart­ly Cloudy – Chance of Sun.  Busi­ness­es appear to be invest­ing for future demand.  Busi­ness inven­to­ries are start­ing to rise, indi­cat­ing busi­ness­es antic­i­pate future demand for their prod­ucts.  This in turn may dri­ve improve­ment in eco­nom­ic out­put.  While a con­tin­u­ing strong U.S. Dol­lar makes U.S. goods and ser­vices more expen­sive for for­eign buy­ers, we antic­i­pate U.S. demand will more than make up the slack.

 

  Man­u­fac­tur­ing Part­ly Cloudy – Chance of Sun.  We are start­ing to see a mod­est recov­ery.  Reports from the 12 Fed­er­al Reserve Banks are show­ing man­u­fac­tur­ing growth across the board.  And, orders for Core Cap­i­tal Goods have risen now for two con­sec­u­tive months.  Polit­i­cal­ly, the new admin­is­tra­tion is pushing/promoting infra­struc­ture spend­ing which should dri­ve the need for addi­tion­al man­u­fac­tur­ing.  All of this indi­cates fur­ther growth through­out the rest of 2017.

 

  Inter­est RatesPart­ly Cloudy w/Potential for Sun.    The U.S. econ­o­my is fun­da­men­tal­ly sound.  And the Fed con­tin­ues to man­age to its dual man­dates; 2% infla­tion and max­i­mum employ­ment. Addi­tion­al­ly, glob­al mar­kets are sta­ble (for the time being) and for­eign cen­tral banks con­tin­ue to pump mon­ey into their economies.  Brex­it and the elec­tions have come and gone, hav­ing lit­tle long term impact on glob­al finan­cial mar­kets.  All signs are pos­i­tive for at least two rate hikes in 2017.

 

  Cap­i­tal Goods New Orders Part­ly Cloudy.  At this junc­ture, a mixed bag of pos­i­tive and neg­a­tive reports.  U.S. Cor­po­rate Prof­its have risen 2.1%.  This indi­cates com­pa­nies may be more will­ing to spend on cap­i­tal projects.  On the oth­er hand, Non­de­fense Cap­i­tal Goods New Orders are down 4% year-over-year.  The neg­a­tive tilt of this met­ric appears to have abat­ed some­what.  We are cau­tious­ly opti­mistic this met­ric will strength­en as the year pro­gress­es.

 

  Con­struc­tionSun­ny.  It’s the same sto­ry as last quar­ter.   More peo­ple are look­ing to buy a home but the inven­to­ry of homes avail­able for sale is lim­it­ed.  This is caus­ing home prices to go up, on aver­age, 5% in 2016.  This in turn will spur home builders to build more homes lead­ing to more sales.  Hous­ing Starts are up 5.7% and Build­ing Per­mits are up 1% over 2015 rates.

 

 

 Inter­na­tion­al – Cloudy with a chance of sun.  Glob­al eco­nom­ic data is most­ly pos­i­tive for the 4th quar­ter due to a com­bi­na­tion of improved con­di­tions in emerg­ing mar­ket coun­tries and stronger growth in devel­oped economies.  In the Euro­zone, the U.K. and Ger­many both report­ed bet­ter than expect­ed eco­nom­ic news.  In Asia/Pacific region, Japan report­ed ris­ing exports (5.5% increase YoY) and trade sur­plus­es.  Emerg­ing Mar­ket economies showed con­tin­u­ing signs of greater sta­bil­i­ty which bodes well for the future.

The IMF main­tains the worst is now behind us but with a caveat; new, anti-trade poli­cies could restrict inter­na­tion­al trade which, in turn, could sig­nif­i­cant­ly impact glob­al growth.   Export dri­ven economies such as Chi­na, Japan and Mex­i­co would be the worst hit by these poli­cies and this could exac­er­bate domes­tic imbal­ances.