Econ – US

THE WEEK AHEAD We look at credit, debt, and leverage given new data from the Federal Reserve (Fed). We conclude that private sector debt and leverage remain important contributors to both risk and growth. Elevated levels of private sector debt and leverage increase potential risks that should be addressed in portfolios as the cycle ages. MACRO VIEW Recent data from the Federal Reserve shows private sector debt remains elevated despite some household deleveraging. We continue to believe a relationship exists between private sector debt, the economic cycle, and equity market volatility, and that relationship is stronger today than years ago….

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THE WEEK AHEAD Federal Open Market Committee (FOMC) rate decision, projections, and press conference Wednesday afternoon should garner significant attention and will Likely sets the stage for a December tightening. MACRO VIEW This week’s FOMC meeting should set the stage for a December hike.  There is little in recent statements that lead us to believe a September tightening is in the cards.  Data since July was generally positive, opening the door for a more balanced statement.  Brexit failed to produce a worse case dislocation, and leading indicators appear resilient.  The WCA Fundamental Conditions Index rose through the summer months, and…

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This week’s Consumer Price Index data will shed more light on underlying inflation ahead of the Federal Reserve’s (Fed’s) September 21 meeting. MACRO VIEW In 1919, the Federal Reserve Bulletin stated that inflation is the process of making addition to currencies not based on a commensurate increase in the production of goods.  We like this definition because it recognizes inflation as essentially a “monetary phenomenon,” to borrow Milton Friedman’s words.  It also clarifies the central bank’s role as chief steward of the money supply and inflation rate.  Inflation, or lack thereof, is the key feature in the debate over the…

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Editors’ note:  We are renaming the weekly “News You Can Use: The Week Ahead” to “Monday Morning Minute.”  The goal is to provide a short (~ 1 minute) narrative for the week ahead each Monday (or, in this week’s case, Tuesday). THE WEEK AHEAD Light week for data.  Wednesday’s “Beige Book” provides some additional context for upcoming Federal Open Market Committee (FOMC) discussions on September 21. MACRO VIEW Now that growth is looking better, will the Federal Reserve (Fed) follow through with a rate hike in September?  We think the answer is no. Although the August employment report showed progress,…

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Global growth is picking up.  At Jackson Hole, Janet Yellen said the case for a rate increase is stronger, given the recent pickup in data.  It appears that earlier concerns that Brexit would hurt near-term growth were misplaced.  Weak productivity growth, a clouded earnings picture, and lackluster investment remain long-term concerns.  This week’s data will provide further insight into employment and manufacturing trends. The Federal Reserve of Atlanta’s “GDP Now” estimate of Q3 GDP is 3.6%.  Private forecasters seem to be raising their growth forecast toward 3%.  This is a big improvement from last winter’s 1% growth environment.  Steady consumer demand, coupled with…

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Barometer Update

The Federal Reserve (Fed) releases the minutes from July Federal Open Market Committee (FOMC) meeting on Wednesday. MACRO VIEW Credit spreads are tighter.  Commodity prices are firmer.  More stocks are participating to the upside.  Financial conditions within the banking system are improving.  These are some of the “high frequency” items that are on the mend this year.  As this happens, equity markets are performing better. Our own WCA Fundamental Conditions Barometer (below) is telling a similar story.  Around the time markets began to price in a less-hawkish Fed earlier in the year, conditions began to firm.  Commodities ended their freefall. …

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The Week Ahead

The data supports an economy gathering momentum into the third quarter.  This week brings some additional data on retail sales and consumer sentiment. MACRO VIEW The July employment report was strong.  Jobs rose 255,000 in the month, adding to the 292,000 increase in June.  These increases contrast sharply with the 84,000 average job gain in April and May.  The strength in jobs suggests income and spending are also picking up.  The Federal Reserve of Atlanta now estimates the economy will grow 3.8% in the third quarter.  Growth averaged just 1% in the fourth quarter of 2015 and first quarter 2016….

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Viewpoint

Friday’s July employment report is the big number this week.  This indicator is a focal point for the Federal Reserve (Fed) and has been very erratic of late.  The 6,000 job loss in May was shockingly poor, but it was followed by a better-than-expected 265,000 job gain in June.  Will the real labor market please stand up?  A Bloomberg survey reveals a street expectation of 171,000 jobs and a 4.8% inflation rate. MACRO VIEW Last week’s Gross Domestic Product (GDP) report showed an economy growing at just 1.2%.  This headline figure will be revised further, but taken at face value,…

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Barometer Improves

The Republican National Convention kicks off in Cleveland this week.  Expect politics to dominate headlines.  Meanwhile, the basic pattern in the data still suggests an improving economy as we head toward the fall. MACRO VIEW The market’s rally of late is accompanied by improvement in the WCA Fundamental Conditions Index*.  Through May, the index rose to 45 and is likely to break above 50 by the time all of the data becomes available.  Earnings forecasts for the S&P 500 are up four straight months, along with some surveys of business expectations.  Oil prices are no longer at lows.  Expectation of…

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This week’s data includes a look at consumer prices and industrial production on Tuesday.  Each is relevant given recent below trend growth in fundamental data. MACRO VIEW Headline consumer prices (CPI) in the last year were pressured by a sharp decline in the energy component of the index.  Stripping out energy (and food), core underlying inflation trends appears stronger (second chart, below).  The core inflation numbers tend to be the ones emphasized most by policy makers, however.  The rise in current core inflation trends stand at odds with overall inflation and future expectations for falling headline inflation (bottom chart, below)….

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Weekly Comment

Productivity growth averaged 3% through the 1950s and 1960s, declined to 2% from the mid-1970s through 2007, slid to just over 1% since the 2008-2009 recession, and fell to under 0.5% last year.  We are at serious risk of stagnating growth, should this trend continue.  In such an environment, tactical approaches will be required as long-run returns would tend to diminish with real growth rates.  Currently, we see recession risk above historic averages, given generally weakening global data.  This slippage in fundamentals that became more evident in late 2015 contributed to our elevated focus on quality in equity portfolios and…

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THE WEEK AHEAD The Federal Open Market Committee (FOMC) conducts their March meeting on Tuesday and Wednesday. Growth overseas remains sub-par, but U.S. consumer spending is stronger and monthly job gains are up 235,000 over the last six months. Signs of moderate inflation can are evident in the personal consumption expenditures price index.  This index rose 1.3% year-over-year in January. MACRO VIEW All the churn in markets during the first quarter had little impact on our assessment of fundamentals.  Our WCA Fundamental Conditions Barometer remains below 50 and portfolios are defensively allocated.  The latest actions by the European Central Bank…

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WCA Weekly Update

Light economic data from the United States expected this week, and the European Central Bank (ECB) is expected to deliver additional monetary stimulus.  China releases February’s Merchandise Trade Balance, Consumer Price Index, and Producer Price Index while Japan and the EU both release their latest GDP prints. MACRO VIEW We are looking for signs of an upturn in the data when we update our WCA Fundamental Conditions barometer and forecasts next week.  For now, we view the recent stabilization in commodities and better tone in the stock market as providing some reason for optimism, but we need further evidence that…

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MACRO VIEW We are not in a recession, but we are seeing data that is uncharacteristically weak for an expansion. The last quarterly GDP report showed 0.7% annualized growth for the latest quarter with real GDP up just 1.8% over the year prior (below). This growth is too weak for comfort as it leaves the economy more exposed to a potential recession in the event of a unforeseen shock. Headline inflation of 0.4% is still well below the Federal Reserve’s (Fed’s) target and core personal consumption expenditure prices are up just 1.2% through December compared to a year earlier. January’s…

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A short trading week sees December 2015 Consumer Price Index released on Wednesday, January’s Philadelphia Federal Reserve (Fed) Business Outlook Survey on Thursday, and December 2015 Existing Home Sales on Friday. Consumer prices have been showing more life than other inflation readings. According to Econoday, the consensus for December is for a fourth straight 0.2% gain for the core (ex-food and ex-energy) reading. Total prices are expected to come in unchanged reflecting another expected decline for energy. The Federal Reserve Bank of Atlanta recently lowered its Fourth Quarter of 2015 growth forecast from 0.8% to 0.6% (see below). This would…

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