U.S. eco­nom­ic reports improved quar­ter-over-quar­ter.  U.S. busi­ness­es appear to have emerged from a mul­ti-year earn­ings slump, with the Q1/Q2 S&P 500 sales and prof­its show­ing year-on-year growth for the first time since late 2014.  GDP is up 2.8% year-over-year and eco­nom­ic sen­ti­ment con­tin­ues to improve.  Key risks include uncer­tain­ty on Pres­i­dent Trump’s eco­nom­ic pol­i­cy, geopo­lit­i­cal threats abroad (North Korea, a pro­tec­tion­ist Europe, the Mid­dle East) and the Fed’s approach to unwind­ing it’s bal­ance sheet.

The glob­al eco­nom­ic sit­u­a­tion con­tin­ues to improve as well.  Key met­rics sig­nal glob­al growth to pick-up mod­est­ly through the end of the year and into 2018.  Growth is broad based with the recov­ery in com­mod­i­ty pro­duc­ers help­ing emerg­ing mar­ket coun­tries.  There are also signs of ris­ing demand for high-tech goods and invest­ment in cap­i­tal improve­ments.  Key risks con­tin­ue to be polit­i­cal in nature as sev­er­al coun­tries are grap­pling with gen­er­al elec­tions where pro­tec­tion­ist can­di­dates are mak­ing a run for power.

Last quar­ter we were opti­mistic about the glob­al econ­o­my.  We con­tin­ue to believe the worst is behind us, both in the U.S. and glob­al­ly.  Glob­al eco­nom­ic growth is begin­ning to accel­er­ate and should con­tin­ue to do so through­out 2017 and into 2018.

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 good news con­tin­ues, quar­ter over quar­ter.  The con­sumer is 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.  Retail Sales through June are up 1.7% year-over-year.

All-in-all, the con­sumer will steadi­ly pro­pel eco­nom­ic growth through 2017 and into 2018.

  Whole­sale TradeSun­ny.  Over­all, Whole­sale Trade is improv­ing.  US Total Whole­sale Trade was up 3.9% through the 12 months end­ing in May.  The US Dol­lar is weak­en­ing against major glob­al cur­ren­cies which, in turn, helps make US goods less expen­sive over­seas.   Key areas expe­ri­enc­ing strength are those in the Com­modi­ties sec­tor and the Con­struc­tion sector.

We expect accel­er­at­ing growth in both durable and non­durable seg­ments through this year and into 2018.

  Man­u­fac­tur­ing Sun­ny.  Man­u­fac­tur­ing is off to a sol­id start in 2017.  Aver­age Man­u­fac­tur­ing Pro­duc­tion dur­ing the 12 months end­ing in April rose 0.4% year-over-year.  US Cor­po­rate Prof­its and Capac­i­ty Uti­liza­tion rates con­tin­ue to rise.  Key con­trib­u­tors include the increas­ing ener­gy pro­duc­tion with­in the US, a strong domes­tic hous­ing mar­ket, and glob­al eco­nom­ic growth.

As we pre­dict­ed last quar­ter, Man­u­fac­tur­ing has turned the cor­ner and is now in growth mode.

  Inter­est RatesPart­ly Sun­ny.   The U.S. econ­o­my is fun­da­men­tal­ly sound.  The Fed­er­al Reserve raised inter­est rates again in June, sig­nal­ing they remain con­fi­dent in the US Econ­o­my despite low infla­tion.  Cur­rent infla­tion, 1.3% thus far in 2017, is below the Fed’s infla­tion tar­get of 2%.  How­ev­er, with low unem­ploy­ment and ris­ing wages, we antic­i­pate the infla­tion will have to even­tu­al­ly rise beyond the 2% mark by the end of the year.

A key unknown is how the Fed will begin unwind­ing the $4.5 tril­lion of bonds it holds on its’ bal­ance sheet due its’ inter­ven­tion in the mar­kets dur­ing the Great Recession.

We con­tin­ue to believe inter­est rates will remain low for longer.  The Fed will raise rates but they will be increase by only 0.25% each time.

  Cap­i­tal Goods New Orders Cloudy.  Once again, short term indi­ca­tors allude to improve­ment in the indus­tri­al sec­tor.  Ris­ing Machin­ery Man­u­fac­tur­ing Capac­i­ty Uti­liza­tion Rates indi­cate activ­i­ty lev­els are increas­ing.  Ris­ing US Cor­po­rate Prof­its sug­gest busi­ness­es will be bet­ter posi­tioned to place new orders through 2017.  And, a gen­er­al rise in the US Pur­chas­ing Man­ag­er Index sup­ports the argu­ment that we will see improve­ment in New Orders lat­er in 2017.

Giv­en the mixed bag of pos­i­tive and neg­a­tive reports, we con­tin­ue to believe this met­ric will strength­en as the year progresses.

  Con­struc­tionSun­ny.  It’s the same sto­ry as last quar­ter.  Pos­i­tive news con­tin­ues for the hous­ing sec­tor.  June Hous­ing Starts rose 8.3% from May.  Sin­gle fam­i­ly hous­ing con­tin­ues to accel­er­ate, the result of low unem­ploy­ment, ris­ing wages, and ris­ing con­sumer con­fi­dence.  Per­mits for future con­struc­tion climbed 4.1% for sin­gle fam­i­ly homes and 13.9% for mul­ti­fam­i­ly projects.

How­ev­er, head­winds do per­sist.  Tight inven­to­ries of homes are lead­ing to high­er hous­ing prices.  This, in turn, could deter some would-be buy­ers.  There are also crit­i­cal short­ages; ready-to-build lots are in short sup­ply, skilled labor is hard to find and ris­ing mort­gage rates could neg­a­tive­ly impact this metric.

   Inter­na­tion­al – Part­ly Sun­ny.  The world econ­o­my con­tin­ues to pick up as the accom­moda­tive mon­e­tary pol­i­cy in Europe and Asian coun­tries con­tin­ue.  The World Eco­nom­ic Out­look (WEO) raised its’ 2017 and 2018 glob­al growth pro­jec­tion to 3.5% and 3.6% respectively.

In the Euro­zone, Brex­it talks have begun but have been an non-event.  The UK econ­o­my is esti­mat­ed to have grown 1.8% in 2016, sec­ond only to Germany’s 1.9%, despite all the press about leav­ing the EU.  Euro­zone man­u­fac­tur­ing is on the upswing, led by Aus­tria, the Nether­lands and Ger­many.  Like­wise, employ­ment growth is run­ning at one of the high­est rates seen in the last 20 years.

In the Asia/Pacific region, China’s man­u­fac­tur­ing PMI for July hit is 4‑month high, top­ping expec­ta­tions.  Over­all, China’s econ­o­my grew at 6.9% in the first quar­ter of 2017.  In addi­tion, India’s econ­o­my grew at a 6.1% rate dur­ing the same quarter.

Emerg­ing Mar­kets saw bet­ter than expect­ed growth in some mem­ber coun­tries; Mex­i­co, Brazil and South Korea.  Due to the rel­a­tive recov­ery and sub­se­quent sta­bi­liza­tion of com­mod­i­ty prices, many EM coun­tries saw eco­nom­ic improvement.

Over­all, the glob­al eco­nom­ic recov­ery is on track.  We antic­i­pate growth will accel­er­ate through the end of the year and into 2018.  Grant­ed, head­winds do per­sist and the prob­a­bly of a black swan event is con­sid­er­ably high­er for the glob­al economy.