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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….
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,…
Britain’s decision to leave the European Union (EU) reflects widespread dissatisfaction with EU governance. The rejection of EU governance highlights the inherently unstable nature of the organization. If individual members experienced long-run benefits, defections would not occur. Instead, the people of Europe would press for a formal merger. If individual members become dissatisfied, these countries are likely to break away. Why would a dissatisfied and democratic country like the United Kingdom look to remain? Most, including us, believed the vote would lean toward maintaining the status-quo. This exit vote marks the first tangible step backward from the decades old vision…
The Doha oil talks concluded with a resounding thud over the weekend, as media sources reported an abrupt end to talks aimed at curtailing oil supply. Iran’s absence at the meeting was cited as a primary catalyst for the end of talks. We expect oil to trade lower, as markets unwind some of oil’s recent run-up that occurred in anticipation of more positive news. Brent crude closed Friday 14% above its 100-day moving average and more than 50% above the January lows near $26. Given the elevated correlation between credit spreads and oil prices, we would not be surprised to…
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…
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…
A Christmas-shortened week sees the final release of third quarter Gross Domestic Product (GDP) on Tuesday and Core Capital Goods Orders on Wednesday. Markets close early on Thursday for Christmas Eve and are closed on Friday for Christmas Day. Core Capital Goods Orders could be the best leading indicator of all on business investment spending. Orders tend to decline six to twelve months before an economic downturn and typically rebound anywhere from three to eighteen months after the bottom of the recession (See chart below). The steady climb in capital goods orders that followed the last recession has slowed somewhat…
Full Report WHAT ’S DRIVING GROWTH? Asset Allocation Update Fourth Quarter, 2015 From 1980 to 2007, the economy grew near a robust 3-3.5% trend growth rate throughout the 27-year period. The period began with the Dow at 840 and ended 2007 with the Dow over 13,000. Recessions were of the normal variety, with business slumps followed by robust recoveries and expansions. Technology, an expanding workforce, a pervasive spirit of entrepreneurial risk-taking, freer trade, lesser regulation, and reduced tax burdens all fostered growth. This 27-Year Period Saw: 1. GDP grow to $15 trillion from $6.5 trillion, 2. Household net worth grow to $67 trillion from $10…
The world economy continues to grow at half-speed as emerging economies downshift from a period of rapid and credit-fueled growth. At the same time, developed economies like the United States appear to be growing at a slow-but-steady pace. Before the last recession, emerging economies grew near 9% and developed economies grew near 3%. Today, those growth rates stand nearer to 4% and 1.8%, respectively. The world’s economies are collectively growing at a little more than half as fast as they were just a few years ago. Financial market conditions are tightening, however, and this introduces some downside risk. Financial market…
This week brings more information on the economy’s performance including Friday’s August employment report. The rise in volatility comes just weeks before the Federal Reserve (Fed) is expected to decide on the timing of the first rate increase in a decade. Consequently, the focus will be on how the recent spike in market volatility is sustained and to what extent it feeds back into the real economy. While last week’s tumult is probably too recent to register much of an impact on the employment report, each new piece of information from here will be evaluated from the perspective of how…
We see higher long-run returns from emerging markets after a five year period of sideways performance and as returns in recent years push the Morgan Stanley Capital International (MSCI) EM Index well below the long-run trend (chart below). We are currently expecting long-run EM equity returns to be about 1% higher than our current long-run domestic equity return, now that the emerging markets have suffered through five years of sideways market action and underperformance versus developed equity markets. The multi-year slog for emerging market investors means that major EM indices remain near the levels seen during the 2008-2009 recession, despite…
Greece’s troubles enter a new and uncharted phase this morning, as Greek negotiators abandoned talks this weekend with creditors and, instead, called for a July 5 referendum where the Greek people will vote on whether they agree with the latest proposal by creditors (which actually no longer exists). Greece’s creditors rejected Greece’s request for an extension of the current loan program, which means that the Greek government will not have access to a remaining 16 billion Euros of additional funding. Consequently, the Greek government will most likely miss a €1.5 billion Euro payment due to the International Monetary Fund (IMF)…
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