Overall, the U.S. Economy continues to improve but at a very slow pace.    Leading indicators, while somewhat mixed, point to modest economic strengthening.  Gains were fairly widespread especially for manufacturing orders.  Unemployment claims were also positive in August and, like early September manufacturing readings, may extend into this month given the latest decrease in jobless claims report.  The Fed, as we predicted, decided to keep the status quo in its’ QE3 bond buying program.  Numerous reasons can be cited as potential reasons for their decision to stand firm; 


  1. Economic indicators, while generally positive and moving in the right direction, are and continue to be mixed,
  2. The belief that the sharp rise in mortgage interest rates could derail the housing recovery,
  3. A comment from the International Monetary Fund stating any change in QE3 could exacerbate the financial situation in the Emerging Markets and, to a lesser extent, the European economic recovery,
  4. To protect us from ourselves; specifically a self-inflicted crisis such as a prolonged and ugly debate on the federal debt ceiling, the nomination of a new Fed chief, etc. 


The Fed will continue to pursue easy monetary policy in order to support economic growth as it sees fit well into 2015.  It is our opinion, the Fed will not exit the bond buying program until December 2013 at the earliest and, more likely, in Q1 2014 and interest rates will remain low well into 2015.         


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.


Mostly SunnyRetail Sales 

Mostly sunny with a chance of clouds.  Consumer spending continued to show moderate growth this quarter.  Over the three month period, Retail Sales fractionally ticked upward with the exception of August which showed the slowest spending in four months.  Spending associated with home interiors; furniture, electronics and appliances, showed the greatest increases while spending on home exteriors; building materials and garden equipment, showed the most weakness.  In general, the trend continues to be positive but is consistently weak.    We anticipate the trend to continue through the end of 2013 and into 2014 but are keeping our eyes on the effects of higher taxes, lack of meaningful employment gains, lackluster wage growth, and mild inflationary pressures.  


SunnyWholesale Trade

Mostly sunny.  Annual Total Wholesale Trade increased to a record-high $5.0 trillion in July.  The wholesale trade market is showing signs of accelerated growth with annual production registering 3.1% ahead of last year.   

We believe both Durable and Nondurable Goods will recover and continue to rise through the end of the year and into 2014 due to economic expansion and a continued recovery in the housing market. 



Mostly sunny.  Last quarters weakness in Manufacturing was temporary and we are now seeing it rebound to levels seen early in the year.  U.S. Industrial Production is chugging along, rising at an annual rate of 2.4%.  The growth is nothing robust, but nonetheless, the economic climate in the U.S. is continuously improving. 

We expect continued slow and steady growth through the end of the year and into 2014.      


Mostly SunnyInterest Rates

Mostly sunny with a chance of clouds.  As we predicted, the Fed stayed the course on their QE3 bond purchase program.  Given the continued soft economic reports over the past quarter, this should have been expected.  The yield on the U.S. 10-Year Treasury has now settled into a fairly “stable” range of between 2.6% and 2.9% even with the “surprise” no-call by the Fed. 

The U.S. economic condition is improving slowly but surely.  Assuming the only shocks to the economy are self-inflicted, we will be looking to the overall global economic situation to be the deciding factor in whether or not the Fed begins to taper their bond buying program.  Regardless, the Fed will keep interest rates at historic lows until we see a significant pick-up in inflation. 


SunnyCapital Goods New Orders 

Mostly Sunny.  The trend is in – The accelerating growth trend for Non-defense Capital Goods New Orders is in full swing.  Annual New Orders increased to the highest level in over four-and-a-half years in July and 0.8% ahead of last year.  New Orders during the most recent quarter registered 6.1% above the same period in 2012, indicating that further increases are likely.  Good news for the remainder of 2013 and into the first half of 2014.


Mostly SunnyConstruction

Mostly sunny with a chance of clouds.  National housing starts have been somewhat volatile over the past few months.  Home sales surged in May, dipped in June and fell sharply in July when interest rose on Fed taper fears.  While rising mortgage interest rates have put a damper on refinancing and home sales, we believe this a temporary situation as the general population will become accustomed to current mortgage interest rate levels and realize rates are still quite favorable on a historic basis.  In fact, by the end of August, existing home sales showed a “surprise to the upside” supporting our belief the threat of higher interest rates was a short term event.

The National Association of Home Builders (NAHB) Housing Market Index (HMI), a gauge of homebuilder sentiment, has reversed course from the first half of the half of the year.  Since the June reading of 52, the index has increased and is now at 62 for the month of September.  Overall, a net positive for the remainder of the year and into 2014.  



Fog, Heavy at times.  The good news in the Eurozone is that the UK continued to post better than expected economic data, most recently in the labor market where the key jobless rate dropped from 7.8% to 7.7%.  The European Union countries, like the U.S., are seeing slow progress in most of its economic indicators.  EU manufacturing PMI improved month-over-month with the growth rates of output, new orders and exports all seeing their highest readings since May 2011.  Retail sales were fractionally higher by 0.1% and jumped 2.0% in France.  On the negative side, second quarter GDP was up an unrevised 0.3%.  Unfortunately, that is below last year’s 0.8% reading.  Also, Germany’s manufacturers’ orders fell by 2.7% and industrial production dropped 1.7%.  While in France, the jobless rate edged up 0.1% to 10.5%.  Overall, the Eurozone continues to make progress towards getting out of recession but have recently hit a soft patch.   

In Asia, positive economic data was reported.  In China, the data was basically positive with both retail sales and industrial production increasing more than expected.  However, the politicians’ downplayed the reports saying the recovery is still not on solid footing as there are many uncertain factors that could derail the recovery.  In Japan, the government upgraded its assessment of the economy for the seventh time this year saying deflation is ending. 

International economic indicators continue to be mixed but generally positive.  At this juncture, the UK appears to have moved forward in growing their economy.  Euro economy’s, appear to have bottomed for the time being but the trend over the past quarter has been inconsistent.  Like the UK, economic data coming from China, Japan and the rest of Asia, appears to be generally positive.  Like the Euro zone however, it is not clear whether the positive data is real or an anomaly.  

3rd Quarter 2013 Eco Update