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