The U.S. econ­o­my con­tin­ues to do well.  It is sta­ble and has proven to be resilient to domes­tic and glob­al news events.  It con­tin­ues to slow­ly recov­er and, accord­ing to most econ­o­mists, should con­tin­ue to do so through 2017 and into 2018.  The employ­ment sit­u­a­tion con­tin­ues to improve; the unem­ploy­ment rate is 4.7% and remains near cycli­cal lows.  GDP is grow­ing at an annu­al­ized rate of approx­i­mate­ly 2.1% in 2016 and at a more mod­est pace of between 1% and 1.5% in the first quar­ter of 2017.  And, infla­tion is start­ing to creep high­er.  Giv­en the pos­i­tives, the Fed­er­al Reserve will like­ly raise inter­est rates again in mid-2017.  It has now tar­get­ed rates between 0.75 per­cent and 1 per­cent for this year.

The glob­al eco­nom­ic sit­u­a­tion con­tin­ues to improve as well.  Euro­pean con­sumer con­fi­dence has recov­ered to its pre-cri­sis highs and busi­ness­es are sig­nif­i­cant­ly more con­fi­dent in their eco­nom­ic out­look.  And, now that com­mod­i­ty prices have sta­bi­lized and in some cas­es increased, Emerg­ing Mar­kets economies are see­ing a slight resur­gence.  Chi­na, in par­tic­u­lar, has been grow­ing at a steady rate since the gov­ern­ment intro­duced pol­i­cy mea­sures to sta­bi­lize their stock mar­kets.  This in turn has been a pos­i­tive for neigh­bor­ing Asia-Pacif­ic coun­tries.

Last quar­ter we were cau­tious­ly opti­mistic about our pre­dic­tions regard­ing the glob­al elec­tion and were vin­di­cat­ed.  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.  All-in-all, the con­sumer will steadi­ly pro­pel eco­nom­ic growth through 2017 and into 2018.

 

  Whole­sale TradePart­ly Cloudy – Chance of Sun.  Over­all, Whole­sale Trade is improv­ing.  It is up 1.5% through the 12 months end­ed Feb­ru­ary 2017.  Key areas expe­ri­enc­ing strength are those in the Com­modi­ties sec­tor and the Con­struc­tion sec­tor.  In Com­modi­ties, the Whole­sale Trade of Petro­le­um and Petro­le­um Prod­ucts rose 46.9% dur­ing the past quar­ter.  In Con­struc­tion, the Whole­sale Trade of Lum­ber and Oth­er Con­struc­tion Mate­ri­als rose 6.3%.

 

  Man­u­fac­tur­ing Chance of Sun.  Last quar­ter we report­ed that man­u­fac­tur­ing had start­ed to turn pos­i­tive.   The first quar­ter 2017 con­tin­ues this trend.  Man­u­fac­tur­ing grew at over a 5% sea­son­al­ly adjust annu­al rate through the three months end­ed Feb­ru­ary.  The man­u­fac­tur­ing index is at its high­est quar­ter­ly aver­age in six years.  Over­all, a pos­i­tive that we expect to con­tin­ue to improve through 2017.

 

  Inter­est RatesPart­ly Cloudy w/Potential for Sun.   The U.S. econ­o­my is fun­da­men­tal­ly sound.  The Fed­er­al Reserve raised inter­est rates for the 2nd time in four months and have indi­cat­ed they would like­ly con­tin­ue to raise rates through 2017 and 2018.  On a year-over-year basis, infla­tion con­tin­ues to slow­ly creep up.  The CPI has risen 2.5% over the past 12 months and the PPI has increase 2.2%, the biggest year­ly advance since 2012.

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 Part­ly Cloudy w/Potential for Sun.  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 are cau­tious­ly opti­mistic this met­ric will strength­en as the year pro­gress­es.

 

  Con­struc­tionSun­ny.  It’s the same sto­ry as last quar­ter.  Pos­i­tive news con­tin­ues for the hous­ing sec­tor.  March’s Total Exist­ing Home Sales is 5.9% above year-ago lev­els and is the strongest month of sales since 2007.  Appli­ca­tions to build new, sin­gle fam­i­ly homes rose to the high­est lev­el since 2007 and Build­ing Per­mits were up 1% over 2016 lev­els.

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 – Cloudy with a chance of sun.  The world econ­o­my con­tin­ues to pick up as the accom­moda­tive mon­e­tary pol­i­cy in Europe and Asian coun­tries con­tin­ue.  Euro­zone retail sales are start­ing to pick up, and unem­ploy­ment fell 140,000 in Feb­ru­ary.  Hav­ing said that, there is still room for improve­ment; unem­ploy­ment is 10% in France and 18% in Spain.  Polit­i­cal­ly, fears of far-right, anti-immi­grant/an­ti-glob­al­ism sen­ti­ment, has dimin­ished as France, Aus­tria and the Nether­lands saw hard-right can­di­dates lose their polit­i­cal bids.  We antic­i­pate polit­i­cal sta­bil­i­ty mov­ing for­ward.

The Chi­nese gov­ern­ment has report­ed their econ­o­my con­tin­ues to grow due to new eco­nom­ic poli­cies.  Growth has been report­ed at 6.8%, with­in the stat­ed growth path of between 6% and 7% the gov­ern­ment has com­mu­ni­cat­ed.  Oth­er Emerg­ing Mar­ket economies have improved on the strength of ris­ing com­modi­ties prices.

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.