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Tags: united states | economy | invest | financial markets

Trying to Stay Mostly Positive on US Economy

Trying to Stay Mostly Positive on US Economy

Dr. Edward Yardeni By Tuesday, 16 February 2016 08:35 AM Current | Bio | Archive

I’ve spent most of this year so far discussing the widely feared potential consequences of the tightening tantrum in the financial markets, trying to find positive spins to counter the tsunami of pessimism.

Allow me to take a break and focus on what is actually going right, particularly for the U.S. economy:
(1) Commodity prices. Debbie and I continue to monitor the CRB raw industrials spot price index on a daily basis. It is up 6% since it bottomed last year on November 23, following a 27% plunge from 2014’s high. As we noted last week, despite that freefall, global measures of the volume of exports and industrial production continued to climb to new record highs at least through November. That certainly suggests that the drop in commodity prices was mostly attributable to excess supplies and exacerbated by the soaring dollar, rather than a significant weakening in global demand.
Meanwhile, while the drop in crude oil prices has greatly agitated stock and bond markets around the world, US consumers are benefitting from a huge windfall at the gasoline pumps. The nearby futures price of gasoline fell down to $0.90 per gallon last Tuesday, the lowest since December 30, 2008. During the first week of this month, the national pump price was only $1.79, and is likely to fall to $1.50 soon. This amounts to nearly a $200 billion annualized windfall for consumers since 2013. That averages out to about $1,500 per household per year.
(2) The dollar. Another positive development is the recent weakness in the trade-weighted dollar. Its strength has been weighing on corporate profits and depressing US exports. It is down nearly 2% since January 20, but still up 21% since July 1, 2014. In her congressional testimony last week, Fed Chair Janet Yellen claimed that she and her Fed colleagues expected a stronger dollar because the US economy has been stronger than most foreign economies and the Fed has broken ranks with the other major central banks by tightening. She admitted, however, that the dollar has soared more than expected. While she remains committed to normalizing monetary policy, she did suggest that the next rate hike could be postponed for a while.
In any event, most of the recent weakness in the dollar is attributable to the unexpected strength in the euro and the yen. Emerging market currencies remain in a downward trend, though they edged up ever so slightly late last week. On Bloomberg radio late last week, as I was driving into NYC to visit a couple of our accounts, I heard one currency strategist convincingly argue that the Chinese were devaluing their currency against the euro and the yen rather than stir up more angst in forex markets by depreciating directly against the dollar. That makes sense to me.
(3) Retail sales.
Meanwhile, Debbie and I continue to count on US consumers to keep the US out of a recession and to offset the bad karma from the rest of the world. So far, they aren’t letting us down. The Atlanta Fed’s website reported on Friday: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.7 percent on February 12, up from 2.5 percent on February 9. After this morning’s retail sales report from the U.S. Census Bureau, the forecast for first-quarter real consumption growth increased from 3.0 percent to 3.2 percent.”
Debbie reports that adjusted for a 0.7% estimated drop in the goods CPI during January, real retail sales rose at a 6.9% annual rate during the three months through January. We aren’t surprised given the ongoing strength in our Earned Income Proxy for wages and salaries.
(4) Initial claims. As Debbie and I noted last week, the latest JOLTS report confirms that labor market conditions are very robust, prompting more workers to quit--presumably to get a better job given that the pace of hiring is strong, with job openings at a record high. Initial unemployment claims remained very low during the first week of February at 269,000.
(5) Mortgage applications.
In addition to a windfall at the gasoline pumps, some consumers are taking advantage of the latest drop in mortgage rates to refinance their mortgages. The MBA refinancing index is up 90% since the end of last year through the first week of February. The new purchase index, on a four-week average basis, is running at the highest level since May 2010. That augurs well for home sales.
(6) Transportation. The major transportation indicators also remain mostly revved up. While depressed car loadings of coal and oil are weighing on the profitability of railroads, their intermodal container loadings remain on a solid uptrend through early February. During December, the ATA Truck Tonnage Index rose to a new record high. Medium and heavy truck sales have been volatile over the past few months through January but remain at cyclical highs.
(7) Drags. Needless to say, we’ve been accentuating the positives so far. Manufacturing indicators are weak. So are capital-spending ones. They are mostly depressed by the severe downturn in the energy industry. There are signs of trouble in business sales and inventories. Manufacturing and trade sales was down 2.7% y/y during December, though it was weighed down by the plunge in oil prices. Excluding petroleum, it was still down by 0.2%.
On the other hand, adjusted for inflation business sales remained on a solid uptrend in record-high territory during November, with a gain of 2.6% y/y. Then again, the inflation-adjusted ratio of business inventories to sales also moved higher last year. 

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.

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I've spent most of this year so far discussing the widely feared potential consequences of the tightening tantrum in the financial markets, trying to find positive spins to counter the tsunami of pessimism.
united states, economy, invest, financial markets
Tuesday, 16 February 2016 08:35 AM
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